The Negative Olympic Effect

Aug 8, 2012   //   by Daniel Morris   //   Commentary / Editorial  //  1 Comment

George Osbourne, David Cameron and many other influential figures have pinned high hopes on London 2012 delivering a much-needed boost to the economy, but with many Londoner’s reporting empty shops and streets (not to mention the empty arena seats), do we really expect this boost to come? Unfortunately figures from previous Olympic games tell us otherwise…

Graph Showing Negative Effect of GDP on Host Countries

The graphic above shows the GDP growth of developed host countries in the 2 years preceding the ceremonies and the subsequent 2 years. You can clearly see the trend of GDP shrinking significantly after hosting the games. It’s may seem surprising that the games actually seem to have a negative effect on economies rather than giving a boost. The questions are, why? and will the UK experience a similar drop?

The UK is already in difficult times; we’re in the second double dip recession since the 1970’s and with the added Euro zone issues, things look like they could be getting worse rather than better. This doesn’t put us in a good position given these figures, but then looking on the bright side, some Countries, such as the USA did experience a growth after their 1996 hosting. The last time London held the Olympics was in 1948 and the economic situation was similar; the country was heavily in debt following the war and that meant that no new stadiums were built and no significant amount of money was spent – this is in contrast to the current games where the cost to the tax payer is approximately £9bn! The government hopes that the games will generate a £3bn boost to the economy through tourism and foreign investment – David Cameron recently ran a business conference with the aim of doing achieving just that and the reception by business leaders seemed to be positive with leaders such as John Chambers from Cisco saying “Britain came second only to Canada for ease of doing business…”, but there were also messages to the government highlighting the fact that they could easily take their business elsewhere if the government made mistakes.

The Outlook

The recent GDP figures showed at 0.7% contraction in the three months to June, which was more than expected and few business leaders who are currently in the city expect the games to provide anything more than a very temporary and short term boost. In line with the figures here, most also acknowledge the fact that any boost from hosting the games usually occurs in the 2 years leading up to the event (as shown in the graph) rather than afterwards. If that’s the case, then things could get a whole lot worse than people are expecting. If you think about it, the reasons behind this are quite obvious; most jobs and investments are created before the games start, both in the construction phase and the increase in business interest as people flock into the country – after the games finish, these things will go away and business will mostly return to normal levels.

Thankfully, good things can come to those who try; although the Spanish economy shrank following the games in 1992, Barcelona was transformed significantly from a run down and outdated City to one of Europe’s top destinations for culture. Sydney also managed the business side of things well after their 2000 hosting and are still reaping some financial benefits many years later. The next UK GDP figures are expected to look better from the influx of visitors and spending as a result of the games and if we can achieve something similar to these countries and keep up the interest, then maybe we can realise the Tory dream and all look forward to continued better times as well.

Alex Legh is the Editor of GLC Money Saving Blog and passionate about all things finance. You can put your views to him or subscribe to blog updates by visiting www.guarantorloanscompany.co.uk/blog

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  • http://www.knightandcompany.co.uk Knight & Co

    I think we need to be careful how much we look into the so called economic implications that the London Olympics will have. We can measure GDP as much as we want but what we can’t measure is the sense of optimism that the event has instilled in the population. We’ve also got the lasting legacy of some of the world’s greatest sporting venues which the people of East London will be able to use for years to come. It’s from this legacy that the future stars of Olympics will arise.