(Bloomberg) -- The euro zone’s economy is waiting for a resounding vote of confidence from its own consumers for its long-awaited rebound to finally take shape.

With employment at a record, wages rising steeply and inflation not far from 2%, the conditions are there for people to get out and spend. Business surveys have started to offer some hope, and on the ground, Kaweh Nemati, a retail entrepreneur in Frankfurt, reckons it’s just a matter of time before shoppers return in numbers. 

“You have to remain positive and optimistic — everything else means giving up,” said Nemati, who owns a small boutique in the city’s Nordend district and heads the local neighborhood’s trade association. “At some point, consumers will have to say ‘we’ve saved long enough.’ And when the first domino falls, then hopefully it’ll take others along.”

The economic pickup in 2024 marks the euro area’s best chance yet to draw a line on years of disruption, ranging from the pandemic to the cost-of-living crisis that then followed. And with manufacturing still sluggish, policymakers are counting on household spending to drive growth. 

The evidence so far suggests that didn’t really happen during the first quarter. While data last week showed the region exited a recession and all four of the euro zone’s biggest economies grew more than anticipated, the consumption picture was mixed, with both Germany and Italy still suffering from weak domestic demand.

But French households did spend more, and there are some more recent hints that the consumer-driven rebound could be materializing.

Services-sector activity in the euro zone reached an 11-month high in April in a reading that was revised higher on Monday after significant improvement in France’s result. S&P Global, which conducts the business surveys, said rising orders indicating that this momentum can be sustained.

Dutch retailer giant Ahold Delhaize NV, owner of supermarket chain Albert Heijn BV, was upbeat in February about the outlook for European consumer demand after volumes were positive in the fourth quarter for the first time in over two years for various brands of Ahold Delhaize.

“We’re at a turning point,” said Antonio Espasa, chief economist for Europe at Santander CIB, who cites wage growth, receding inflation and the prospect of interest-rate cuts by the European Central Bank as drivers of demand in the second half and beyond. 

From his desk in Boadilla Del Monte, a town just west of Madrid, Espasa has a good view of what such a recovery could look like. 

“Spain has seen stronger employment creation than other countries, real disposal income is growing faster,” he said. “At the same time, Spain’s population is expanding substantially. That’s very important for consumption. More people coming in means more people are spending.”

Economists surveyed by Bloomberg predict private consumption in Spain will grow at twice the euro area’s pace, and nearly as much as in the US, where it’s helping the economy to expand at a significantly faster clip.

If such effects can replicate across the region, that would amount to a recovery that ECB officials have long awaited, and predicted — having consistently overestimated a pickup in private consumption. Their latest projections, from March, could still be too optimistic. 

Espasa at Santander predicts an increase of just 0.7% this year and the median of economist estimates is for 1%. Both of those are lower than the 1.2% foreseen by central bank staff.

Trying to work out the psyche of the region’s fickle consumers has long been a key obsession for the ECB. President Christine Lagarde recently singled out household behavior as the biggest difference between the European and US economies, highlighting generous pandemic stimulus checks from Washington and fewer concerns over crises in the Middle East and Ukraine.

“It’s fiscal, it’s energy, and it’s the natural tendency of the American consumers to have confidence to spend, not to save so much,” she told CNBC.

It’s in Germany, Europe’s biggest economy, where the strength of consumption will make the most meaningful difference. Households there have been among the region’s most cautious, unsettled by the implications of the Ukraine war on the country’s cheap gas business model, and political indecision in a fractious government. 

But even there, things are starting to look brighter. Ifo institute President Clemens Fuest told Bloomberg Television last month that household spending may help growth in the second quarter. “What we’ve been waiting for, in a way, it looks like it’s coming,” he said.

On Friday, Deutsche Bank AG economists raised their 2024 forecast to predict growth of 0.3% — instead of a 0.2% contraction — saying private consumption should recover more strongly than they had originally forecast. Meanwhile a gauge of consumer expectations compiled by German retail federation HDE rose to highest since November 2021, according to a release on Monday.

What will ignite and sustain such spending is if people feel a surer sense of the economic backdrop becoming less volatile. 

“Nothing in the data speaks against a very strong increase in consumption,” said Rolf Bürkl, head of consumer climate at NIM, which runs consumer confidence surveys in countries including Germany. “But there’s a strong psychological factor that’s often underestimated — uncertainty. It’s important for consumer spending, just as it is for business investment.”

After years of negative rates, the prospect of earning money again for simple savings is also weighing on consumer demand. While total deposits have risen at a slower-than-usual pace ever since inflation started to climb, those offering higher interest for longer nearly tenfold in Germany and increased noticeably in other countries as well.

With the ECB gearing up to cut borrowing costs, some incentives to save will disappear, which could fuel spending. Policymakers have signaled their intention to deliver a quarter-point rate cut in June, though Lagarde has shirked from signaling further easing beyond that for now. 

Back in Frankfurt, another shopping boom can’t happen soon enough. Walking up Berger Straße, the city’s longest shopping street, Nemati points to a home accessory store that will soon close. 

Further on, boutiques are trying to lure customers with heavy discounts. Others are cutting back opening hours, and too many windows have been empty for a while.

“For a long time, we expected business to come back to where it was before the pandemic, though I’m increasingly convinced that it won’t,” he said. “But hope remains.”

--With assistance from Alexander Weber, Alessandra Migliaccio and Cagan Koc.

(Updates with PMI revisions in seventh, German consumer gauge in 19th paragraph.)

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