What The Euro 2012 Means For The Polish And Ukrainian Economies

euro 2012

Photo: Shaun Botterill/Getty Images

It’s often argued that major sporting events have a negative economic impact on host countries in the long-term. The job creation numbers touted are often too inflated and sometimes a country is left saddled with debt.Those who say otherwise often point to the ‘Barcelona effect’, referencing investment in Barcelona ahead of the 1992 summer Olympics which helped revive tourism.

Poland and Ukraine are hosting the Euro 2012 which began today in Warsaw and will end on July 1 in Kiev. In their latest report, Societe Generale analysts Jaroslaw Janecki and Rosbank Vntsibano look at what this means for the Polish and Ukrainian economies.

Poland

Poland is seeing an infrastructure boom and Janecki and Vntsibanov write that the country managed to maintain strong economic growth after the 2008 crisis because of infrastructure spending tied to the European Football Championship.

In fact, infrastructure spending associated with the UEFA EURO 2012 amounted to 110 billion zloty (about €25.6 billion). 63 billion zloty was connected with road construction. Investment in hotels also increased. Infrastructure projects add around 1.5 per cent to Polish GDP.

Ukraine

Unlike Poland, Ukraine was hit hard by the crisis and in 2009 real GDP fell 14.8 per cent.

But infrastructure investment surrounding the soccer tournament have been a major driver of investment activity growth. Infrastructure expenditures related to the UEFA EURO 2012 championship, totaled 107 billion hryvnia or 8.3 per cent of GDP. More than 73.8 per cent of Ukraine’s UEFA EURO 2012 investments have been aimed at modernizing their transportation infrastructure, namely urban transport, roads, railways and airports.

But expenses tied to the Euro 2012 budget were a burden to the government with 49.2 per cent of the funding coming from the central government and 3.4 per cent from the regional budgets. Janecki and Vntsibanov write, “…government expenditures on the championship preparations, which exceeded 4.4% of GDP, significantly expanded budget deficits and contributed to the rapidly rising debt burden.”

Inflationary risks

Both Poland and Ukraine are expected to see demand-driven inflation pressure in June, especially in the prices of food, alcoholic and non-alcoholic beverages, tobacco, restaurants and hotels.

Of the two countries though, Ukraine is more likely to be impacted by inflation since food makes up a larger share of its consumer basket. The competition is expected to ramp up food prices even more so given expectations of a poor harvest in 2012.

Euro 2012 fans

Photo: AP Images

What about the tourists?Major tourist spending is expected to be a one-off. Official numbers put the number of foreign tourists visiting Poland for the euro 2012 at 820,800. out of whom 453.5 thousand will stay in Poland longer
than one day.

But Janecki and Vntsibanov say the Polish press expect 200K – 250K to come from countries whose national teams are expected to play in Poland during the group phase and only expect them to spend 180 – 230 million zloty.

Moreover they write that part of the problem is that tourists from four of the five GIIPS nations which are going though severe austerity, namely Greece, Ireland, Italy and Spain will start the tournament in Poland. While fans from the richest countries and the one’s most keen on following their teams i.e. the Netherlands, Germany and the UK will start the tournament in Ukraine. They do however add:

“It  is important to note that 13 of the 16 participating teams (excluding France, Sweden and Ukraine) will be located in Poland. Hence, their fans are also likely to spend some time there, especially when their national teams are to play in Poland.”

Given that Ukraine is hosting the final, it is naturally expected to be the more attractive tourist destination. Government official expect 800,000 – 1.2 million tourists through the duration of the tournament, each staying for about three – four nights and spending $1,000.

But these numbers were based on 700K ticket sales, a large portion of which were bought by local residents, and that’s why Janecki and Vntsibanov expect 500K tourists and SocGen anticipates they will spend $400 – $500 million. And lets not forget, some European officials have threatened to boycott matches being played in Ukraine because of the nation’s treatment of former prime minister Yulia Tymoshenko, which could impact tourism.

Tourist expenses are however expected to help offset one-off balance of payments and should satisfy household demand for foreign currency, (remember Poland like other Eastern European countries is struggling to payback mortgages denominated in foreign currencies among other things).

In the end, the event is being seen as causing an infrastructure boom and fans take on both countries could impact the tourist industry.

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