The Olympics Won’t Save Brazil

Major sporting events are frequently touted as catalysts for economic growth in host countries. The potential economic impact, however, may be more pronounced in smaller economies, where a significant influx of tourists and infrastructure investment could lead to substantial improvements.

Several economists and analysts have expressed skepticism about the potential economic boost from the 2016 Olympic Games in Rio de Janeiro, suggesting that Brazil’s already large economy limits the impact of such events. According to a recent note from an economist at Goldman Sachs, the investments associated with the World Cup and the Olympics were insufficient to create a significant economic stimulus, particularly given Brazil’s economy, which is approximately $1.8 trillion.

The economist noted that Brazil has experienced declining investment levels, with total investment spending contracting for two and a half years. Gross Fixed Investment has seen a continuous decline for ten quarters, amounting to a cumulative reduction of 27 percent since late 2013, now reaching levels not seen since mid-2009.

Additionally, an emerging markets economist from Capital Economics pointed out that the actual number of tourists may fall short of official projections due to ongoing concerns about the Zika virus, despite the low risk. Even if tourists spend as much as the average visitor, the economic impact would likely only represent a mere 0.03 percent of GDP.

Historical data indicates that while there was an increase in retail spending during the 2014 World Cup, it was insufficient to prevent an annual contraction in the economy during that quarter. This raises concerns about the long-term viability of infrastructure built for major sporting events; many stadiums often become underutilized or abandoned post-event.

Brazil is not the only large economy to miss out on a significant economic boost following the Olympics. An analysis of GDP growth rates among host countries over the past 32 years shows that more than half experienced weaker growth in the quarters surrounding the games compared to previous periods.

Despite the skepticism, some analysts believe that Brazil’s economic struggles may be starting to ease. A research team noted encouraging signs, such as improved manufacturing metrics and stabilization in industrial production, although they do not anticipate robust growth in the near future.

Moreover, the Goldman Sachs economist highlighted that some negative forces within the economy appear to be lessening, as evidenced by improving consumer and business confidence indicators. As Brazil welcomes athletes and visitors for the Olympic Games, there is a collective hope that this event will reignite enthusiasm and contribute positively to the nation’s economy.