According to a survey by the German Society for Consumer Research, Germans' willingness to spend more money on products reached a new peak in July. Many consumers continue to buy expensive things, such as furniture, electronic devices and cars.

The society expects this trend to continue for the rest of the year, thus taking back previous assessments that there would be a steep drop in consumer spending after the end of the World Cup, which took place in Germany from June 9 to July 9.

The picture looks just as rosy as far as German industry's business confidence is concerned. A recent poll by the Munich-based Ifo Institute for Economic Research points to a decline in expectation levels, but the actual output figures and order books say something different.

"Our order intake is excellent," said the president of the Association of German Industry, Jürgen Thumann, adding that order backlogs are high and growing, along with optimism.

"People are starting to buy after more than five years of cutting back. We also now see a small growth rate in recent months," he said. "I think from a psychological point of view, the Germans are gaining confidence."

A party mood

According to Michael Glos, Germany's conservative economics minister, the country's economic recovery is finally starting to be driven by an increase in domestic demand. Before, the engine of growth was a booming export market.

"The mood in German industry hasn't been this good in 15 years," Glos said. "And it's not all about our export record. Economic recovery has also reached domestic market-oriented firms."

However, the party crasher could be the planned hike in the value-added tax in 2007. It is still uncertain to what extent the three-percent increase may have on spending.

"The compelling question is how things will turn out next year," said Gernot Nerb of the Ifo Institute for Economic Research, which is still optimistic about the economy's course. "But there are other, global factors that might force their way into the equation."

Shop till you drop

According to the surveys by the Society for Consumer Research, a large number of Germans acknowledged that they were planning to buy more goods in the course of this year so as to avoid paying higher VAT as of 2007.

Some economic experts have criticized the grand coalition government in Berlin for its tax hike plans, saying that reaching into people's pockets that way would backfire immediately.

"I wouldn't say that we have an under-financed state," said German economist Rüdiger Pohl. "We'd have enough revenues to see us through. The real problem is structural discrepancies on the spending side. And you can't rectify that situation with tax hikes."

While consumer and business confidence remains at a high level, there's no real relief in sight on the job market. New permanent employment contracts are hard to get, while low-wage seasonal job opportunities are currently on the increase.