The World Cup's Boost To The Brazilian Economy Will Be Small And Short-Term

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Neymar brazilREUTERS/Sergio MoraesA man walks behind a graffiti depicting Brazilian soccer player Neymar and a phantom representing the Uruguayan soccer team, who won the 1950 World Cup in Brazil, in Rio de Janeiro May 14, 2014.

Politicians love to tell their constituents about the big boost an international sporting event will bring to their economy. Surely, this is what Brazil’s leader have tried to sell to the Brazilian people ahead of the World Cup.

Societe Generale’s Dev Ashish is out with a research note on how hosting the World Cup will impact Brazil’s economy.

Ashish notes that spending during the World Cup is expected to total 25.5 billion Brazilian reals (BRL), or just less than 0.6% of Brazil’s nominal GDP. This spending will also help pare Brazil’s deficit.

Ashish writes:

A study by the Brazilian Tourism Institute (EMBRATUR) suggests that around 3.7 million tourists will visit various cities in Brazil for the 30 days the WC is being held and spend a total of BRL25.5bn (=0.57% of nominal GDP). Of this, domestic travellers are expected to spend BRL18.5bn, while foreign travellers should spend BRL6.85bn (=over USD3.2bn). The additional foreign spending (on top of the usual number of tourists who visit Brazil every year) should help reduce about 0.2% point of the estimated overall current account deficit which stands at -3.8% of GDP in 2014e. However, some of this tourism income may not materialise to the extent assumed if the usual number of tourists, i.e. those not attending the event, avoid travelling to cities hosting the event due to higher prices or the inconvenience factor.

Asish, however, notes that costs related to the World Cup, which is estimated at more than $US11 billion has been behind some of the inflation Brazil has experienced over the last several years. It’s also set off huge protests in the country.

He adds that long-term gains from an event like the World Cup are often exaggerated, especially if stadiums built for the event fail to generate enough revenue in the future.

As with most things, you have to spend money to make money. Brazil can only hope that it makes enough money to at least offset what it spent.

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