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Post-Olympic economy: Will Rio be a winner?

Olympics

Every few years, countries across the globe compete to host the Olympics. The case to host the Olympics, according to conventional wisdom is pretty straight forward: it ‘should’ lead to economic prosperity and raise awareness for the host city. Haoran Wu (Research Analyst) investigates whether this is this case.

The facts paint a very different story, though. In most cases, since 1964, annual GDP growth peaked about two quarters before the Olympics and then slowed during and after the games.  Japan’s economic growth, for example, slipped to 5.2% in 1965 after Tokyo hosted the Olympics in 1964 when Japan’s economy grew at a rate of 13.1%. In the year after the Seoul Olympics, South Korea’s economic growth slowed to 6.7% from 10.6% in 1988.

Chart 1

It can be argued that the sudden withdrawal of large-scale construction and infrastructure investment results in the immediate economic slowdown following the Olympic year. But how about the medium term?

Chart 2

While some hosts witnessed slight improvement in the second year following the games, economic growth stayed sluggish thereafter in most countries, and growth five years later was still well below the level achieved in the year of the Olympic Games. Spain, however, depicted a very different picture. It is the only country where growth went into negative territory in the year following the Olympics, but bounced back dramatically from the second year onwards. In fact, the exceptionally strong growth momentum (average 3.6% year-on-year) continued for 14 consecutive years until the collapse of Lehman Brothers.

So what makes the 1992 Olympics one of the most economically successful Games in the long term?  The Barcelona committee devoted over 85% of its budget towards key infrastructural changes that are still in use today. The investment helped to revive the stagnant coastal city and transform it into one of the most popular destinations in Europe, hence bringing in a new era for the city and the country after the Olympics.

Will Brazil’s economy be dampened further by the ‘post-Olympics slowdown’ effect or revitalise in the same way as Spain? It remains to be seen if Rio will leave a worthwhile legacy.

 

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Haoran Wu

Haoran Wu

Research Analyst

Haoran's biography