A few days before the start of Olympics Brazil's economic and political situation remains critical. The Olympic Games and associated economic stimulus will not be enough to jump-start an economy grappling with the longest and most profound recession since the mid-nineties.
A mix of political and economic uncertainty continues to weigh on Brazil, which since the first quarter of 2014 it has lost 8 percentage points of GDP, probably without having hit rock bottom yet waiting to restart (Fig. 1). The unemployment rate exceeded 8%, inflation remains well above the central bank's target e the public deficit last year it exceeded 9% of GDP, while the public debt it grew by 10pp of GDP between 2007 and 2015.
The flow of additional expected for the Olympics it could provide a shot in the arm, but it is unlikely that it will become the fulcrum of the new recovery. Although Brazil is the first South American country to host the Olympic Games, the experience of the 2000s in Australia (Sidney 2000), Greece (Athens 2004), China (Beijing 2008) and the United Kingdom (London 2012) suggests that additional tourism-related stimuli they will hardly be able to reverse the declining trend of the Brazilian GDP.
Usually the Olympic Games are associated with benefits for the host city before, during and after the competitions are held. In a schematic way, the first positive impact for the economy derives from the increase in physical capital to build/modernise new sports facilities and improve local infrastructures. The additional flow of tourists expected at the competitions increases the proceeds of salable services (hotels, restaurants, but also means of transport), which will have to demonstrate that they are competitive in order to consolidate the results once the event is over. The Olympic Games are also a showcase for attracting new business, with benefits that could therefore last over time.
In Brazil, however, the phase of structural investments is practically over and the multiplier effect associated with them has vanished in the crisis of confidence that hit emerging countries in mid-2013 and, specifically in the country, due to the overwhelming growth of the Petrobras scandal.
Moreover, in terms of tourism, Brazil has a positive market situation, having hosted the World Cup in 2014 which, according to World Bank data, helped bring total arrivals to 6.4 million against an annual average of 5.5 million between 2010 and 2013. In addition, the favorable context of the tourism market could be penalized immediately should the fear of the spread of the Zika virus prevail.
In the Olympic editions of the 2000s, the income from international tourism flows does not show a regular or continuous increase in the following years in correspondence with the games. The tourism revenue stream, denominated in national currency, taken from the balance of payments shows an acceleration for Greece and Australia in the year of the games and a certain persistence in the following two years, while for the games in Beijing and London the trend of revenues from services from tourism is more irregular and disconnected from the event (Fig. 2). Furthermore, these are active flows which in the year of the Games did not exceed 2.5pp of GDP, with the exception of Greece, where the incidence was practically double.
In summary, it seems unlikely that in the short term the Brazilian economy will receive important stimuli from the Olympics. Tourism, which could immediately play a leading role in this direction, on the one hand is confronted with the recent experience, which does not associate this phenomenon with a regular contribution relevant to growth, on the other hand it collides with contingent difficulties rowing against unexpected success.
Source: Promethea.
