The business community expects the World Cup will be a tipping point for the economy, but economists are less confident, writes Derek Scally in Berlin.

For flagmaker Bernd Clasen, Germany's economic recovery has come early. The sewing machines in his Duisburg factory are glowing hot, employees are working non-stop in three rotating shifts and all holidays and sick leave have been cancelled. Clasen has sold more than 200,000 flags so far this year and, after today's World Cup kick-off in Munich, he knows demand is going to go through the roof.

"In 2002 it was a surprise when Germany got into the final. Demand grew with every round and people just kept coming to place orders.

"There were lines around the block," he remembers. "There were a lot of flagmakers who just couldn't meet demand in that short space of time. We kept sewing through the night and managed everything in the end."

German companies are hoping that Clasen's luck will spread, but opinion is divided over whether the World Cup will provide the kick needed to get the German economy back on form.

Germany's National Tourist Board is expecting a €9.5 billion shot in the arm for the economy as one million fans arrive to spend an estimated €150 each per day.

In the last months, important economic indicators have improved dramatically, suggesting that the decade of stagnation is ending. The Organisation for Economic Co-operation and Development (OECD) forecasts Germany's gross domestic product (GDP) will expand by 1.8 per cent this year, the best performance in six years and double the 2005 figure.

An important business confidence survey has hit 15-year highs recently and unemployment, while still topping 10 per cent, has dropped by nearly 100,000 last month, far beyond the influence of any seasonal effect.

Retailers have started to report a rise in sales, heralding a return to consumer confidence after years of angst-driven saving that has given Germany a household savings ratio of 10.7 per cent of disposable income.

Nowhere is the new consumer confidence clearer than in electrical superstores. The sector has spent years trying to winkle a few euro out of customers for cheap electrical goods with advertising slogans like "stinginess is super!"

Now expensive flatscreen televisions are walking out the door: LCD set sales are up 136 per cent to €562 million, while sales of €1,000-plus plasma sets are up 82 per cent to €199 million so far this year.

Retailer groups are hoping for an extra €2 billion in sales by the time of the World Cup final, helped along by special offers and a loosening of opening hours that are highly restrictive by Irish standards.

"Without the World Cup and the anticipation effect, it would have been just another weak year," said Hermann Franzen, president of the HDE retailers association.

The German government has financed a multimillion euro campaign called "land of ideas" to attract investment.

This week, the campaign managers pulled out the big guns: huge billboards of Claudia Schiffer draped in the German flag under the slogan "invest in Germany, boys."

Even before the kick-off, however, the doubting Thomases have emerged, questioning whether the World Cup will be the cure-all for Germany's ills. The loudest doubter is the Germany Institute for Economic Research (DIW), which has just published a report calling the World Cup an "important sport and cultural event but without noteworthy economic effect".

"Economic recovery will only happen if the World Cup leads to a sharp change in consumption and investment behaviour," said the report. "That is not to be expected in this case."

Economists are concerned that any upswing in Germany could be strangled by rising oil prices, the rising value of the euro against the dollar and further ECB interest rate hikes.

Of particular concern is the government's decision to raise VAT three points to 19 per cent next January, which could stop the consumer spending spree just as it gets started. And, nine months after the general election, many economic observers are growing impatient that the grand coalition has yet to tackle an overhaul of the healthcare system or reduce high non-wage costs.

German banks have issued forecasts predicting a World Cup economic effect of between zero and 0.25 per cent growth.

The German Chamber of Industry and Commerce (DIHK) is more upbeat, forecasting 0.33 per cent GDP boost which it says could be enough to tip German economic growth in 2006 over the psychological 2 per cent mark.

According to its survey of 25,000 companies, the tournament is going to create an additional 60,000 jobs for staff in hotels, shops and host cities, jobs the government hopes will remain permanently.

The biggest business of the World Cup is, of course, the sponsorship deals sold off by world soccer governing body Fifa. Some 15 firms, from drinks companies to sportswear manufacturers have paid €40 million each to be able to use the "official partner" title in their advertising.

There are also six German "national sponsors", who paid €13 million for local advertising rights, bringing sponsorship to over €750 million.

German fan groups were outraged, if not surprised, when they heard that they will be forced to drink blue-collar American beer and eat American fast food at matches rather than a bratwurst washed down with a crisp pils.

And German companies who had sponsored brand new stadiums in Hamburg, Munich and elsewhere were annoyed when they were told the names would have to be removed for the tournament.

But the supposedly watertight sponsoring agreements may yet come back to haunt Fifa.

Last month a German court ruled that "WM 2006", the German abbreviation for the tournament, was a general term and not a trademark requiring payment of a licensing fee. The ruling - the result of a legal squabble between Fifa and the Ferrero chocolate company - has opened the door to the companies locked out by the exclusive sponsorship agreements at the last minute.

Several German beer companies have scrambled to launch guerilla campaigns and even Lufthansa is now running advertisements that, at first glance, make the airline look like an official sponsor, but without the €40 million price tag.

There is growing speculation here that Fifa may be forced to pay back millions in fees to its sponsors.

"In the negotiations, Fifa touted the WM 2006 brand as the greatest prize," complained one unnamed sponsor to the Handelsblatt business newspaper.

"Our sponsoring contract is no longer being honoured 100 per cent," said Johanna Meessen of the German DIY chain OBI.

Regardless of how far the home side gets in the tournament, few doubt that the World Cup is going to be a huge celebration of Germany and all things German.

"The global economy will effectively provide Germany - a country that apart from whingeing also specialises in invention and systematic production - with a unique marketing event free of charge," said Norbert Walter, chief economist of Deutsche Bank, in a note to investors last December.

"We will win long-term customers for quality German products, like German wine, for example.

"And they will return on holiday to learn more about the country's beautiful towns and their rich cultural heritage."

Michael Hüther, head of Cologne's German Economic Institute is optimistic, if cautious, about the economic impact: "With economic expectations it's a bit like with our national side: You can't raise your hopes too high."