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As the World Cup in June approaches, global attention is increasingly turning towards the host nation, Brazil. Much debate has centred around the infrastructure: will the airports and stadia be ready in time? But more crucially for the economy, will the tournament give Brazil a much-needed economic boost?
The economic impact of the World Cup in Brazil is still up for debate with conflicting studies being cited:
On balance I would lean towards the Moody’s view – that the economic impact of the World Cup will be limited:
In the past we have seen a similar scenario of limited economic impact in other host nations, and with winners and losers across different sectors of the economy. For example the UK hosted the Olympics in 2012 and a study by the Office for National Statistics (ONS) saw no real indication of an “Olympic effect” in the figures for full-time or part-time workers. They found that although spending by tourists increased, actual arrivals decreased because of a displacement effect with the Games leading some tourists to avoid the UK. Interestingly, they also found anecdotal evidence of a fall in online sales as consumers spent their time watching sporting coverage.
Overall, the ONS study concludes the London 2012 Olympic and Paralympic Games (and the Diamond Jubilee in the same year) “did not change the overall picture of an economy that was growing slowly at best during 2012”. A description of a sluggish economy that matches projected growth of just 1.9% in Brazil this year.
FIFA estimates that 3.2 billion people, or 46.4% of the world’s population watched at least one minute of live football during the 2010 tournament, and that 910 million television viewers tuned in to a minimum of one minute of the World Cup final at home. In fact, FIFA believes that the ratings likely topped 1 billion people when including those who watched online and in public viewing places. Hosting the World Cup therefore places Brazil in the world’s spotlight in a way that only a global event can do.
Yet this spotlight leaves Brazil open to risks as well as rewards. Mostly these risks are centred around the potential for damage to “brand Brazil” if we see a re-run of demonstrations that occurred during the FIFA Confederations Cup tournament in 2013, or if infrastructure is not completed in time, or if inefficiencies or serious problems in running the tournament arise. This kind of bad publicity could damage tourism as well as Brazil’s ability to attract foreign investment – at least in the short-term.
Whatever happens, the boost if it comes, will be short-term when what Brazil really needs is structural reform to improve the country’s potential rate of growth. Private consumption has hitherto been the engine of growth, with growth of consumer expenditure peaking at 10.9% in 2010, but this model has reached the end of its course and consumers are being squeezed by high interest rates. Reforms to improve the business environment, boost infrastructure and liberalise the economy are where Brazil stands to make real and lasting gains.
Underlying this weak performance, Brazil has many strengths, including its sheer scale – in 2013 Brazil was the world’s 7th largest economy (in PPP terms), had its 6th largest population and spans its 5th largest land area. It is also home to a vast array of natural resources, key to which is its agribusiness sector and also a young population. Structural reform will allow Brazil to capitalise on these advantages and place it squarely in the global spotlight for the right reasons economically speaking – a prime example of a large emerging market experiencing strong and sustainable growth.