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Coffee House

The Olympic effect won’t be so golden for politicians

30 August 2012

12:34 PM

30 August 2012

12:34 PM

The Olympics and Paralympics have been a superb spectacle this summer, but will they help the economy? No one in the Treasury thinks so – if anything, they fear the games will hurt the figures and pretty soon we’ll be hearing about the ‘Olympic Effect’ damaging Q3 growth figures. George Osborne is already being mocked for his habit of blaming downturns on snow, holidays etc so I suspect the Chancellor will not mention it. But when first class returns from London to New York were half the price they normally are, you have the feeling not much business is being done.

Today, the first economic indicator has come suggesting an Olympic effect. Each month, the European Commission takes an Economic Sentiment Index. Today’s reading has dropped markedly in at the lowest since May, suggesting zero growth in Q3 to follow on from the zero growth in Q2. If Ed Balls were around, he’d make his ‘flatlining’ gesture to illustrate the point.

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Previous Olympic host countries have found an economic bump in the preceding months (due to construction, etc) but a dip during the games. So, if anything, the UK’s dire Q2 data could have been flattered by the Olympics. And seeing as the London games were held in the main economic centre, displacing other activity, there is every reason to believe that there will be a more pronounced effect in our Q3. So our ministers ought to enjoy the remaining events of London 2012: pretty soon, political payback time will begin.

UPDATE: The Bank of England forecasts that the Olympics would be good for the economy, albeit to a limited degree. The below from a press transcript from its chief economist, Spencer Dale (pdf)

” We expect if anything a small positive contribution. The impact that that comes from is not through lots of tourists shopping more, it’s via the impact of both the ticket sales, which although many of us bought tickets earlier in the year they actually count in terms of GDP in Q3, and also the TV rights to the Olympic Committee are also counted in Q3. There may well be some extra spending from tourism, but as many of us know there has also been travel disruptions, more people are going on holiday, so I think those effects are small. But the contributions from both ticket sales and TV rights may lead to a very small boost to GDP in Q3.”

 

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