Championship can add 1 percentage point to Brazil’s GDP this year

The World Cup is here and its effect on the Brazilian economy can be positive, at least in 2014. After a handful of projections that showed minimal or no effects of the Cup on the country’s activity, a study conducted by Bráulio Borges, chief economist at LCA Consultores, considers a broader perspective by looking at the performance of economies that have hosted the event since 1982. The conclusion is that, in these countries, GDP accelerated 1 percentage point on average in the year of the Cup, what may also happen here.

Bráulio Borges
The impact may bring some relief, increasing GDP growth above 2% this year. The Central Bank's weekly report Focus shows that market estimates point to a 1.4% expansion for the economic activity in 2014. A little bit more optimist, LCA is forecasting 1.8% GDP growth and Mr. Borges says the World Cup impact should be considered on those figures.

Official estimates point to 600,000 foreign tourists coming to Brazil for the event, in addition to 300,000 domestic travelers, whose spending is expected to reach R$6.7 billion. A study by the World Travel & Tourism Council (WTCC), indicates that the total contribution (including the effects of investments, for instance) of the travel and tourism sector for the Brazilian GDP is expected to rise 5.2% in the Cup year (or R$22.9 billion) – to R$466.6 billion (9.5% of GDP) from R$443.7 billion (9.2%) in 2014. "Considering other direct and indirect effects, it would be reasonable to estimate this additional impact of around 1 percentage point in 2014," Mr. Borges says.

However, the number of foreigners may be higher: According to state-run tourism company Embratur, more than 500,000 international tourists have already bought tickets for the competition and, in its estimates, the total of visitors who come to a country that will host the World Cup surpasses, on average, by 30% the number of those who buy tickets for the matches.

The study encompasses countries that hosted the event since 1982, comparing the GDP growth in the year previous to the Cup with its performance in the two following years. Thus, there was an acceleration of growth in the year of the World Cup and some slowdown in the following year (0.5% on average) in Spain, US, France, South Korea, Japan, Germany and South Africa. The only countries where this effect could not be proven were in Mexico, which hosted the Cup in 1986, and in Italy, in 1990.

To rule out the hypothesis of a mere coincidence, Mr. Borges compared the GDP median fluctuation pattern of countries that hosted the World Cup with that of global GDP over the same periods. The trends were quite different from the oscillation of the global economy — suggesting a genuine effect of the event on GDP growth, especially in the year of the event is held.

More recent data from Spanish company Forward Data in partnership with Pires & Associados show that by June 1st, 392,200 international-flight reservations had been made for the period of the World Cup (considering June 6 to July 13) — a 62.5% increase compared to the same period last year.

“In addition to the unprecedented impact on the country's image, there is a positive effect on the economy,” says Jeanine Pires, director of consultancy Pires & Associados, underlining that the arrival of many corporate tourists (sponsored by companies) could mean higher spending. She argues that recent strikes, such as those happening in mass transit, hurt the economy but are not an exclusively Brazilian phenomenon. “That happened also in other host countries because of the event's enormous visibility,” she says.

To Daniel Sousa, master in economics and professor at State University of Rio de Janeiro (UERJ), the difficult moment faced by the Brazilian economy, with low growth and falling confidence levels, ultimately affects the expectations for the World Cup, leading many economists to predict even negative impacts from the event. Mr. Sousa believes, however, that although it’s difficult to measure, the Cup impact on the economy is likely to be positive, because of the infrastructure projects that create jobs and increase demand, including in the tourism sector and also the country’s attractiveness with respect to foreign investment and new business opportunities. "It is clear that any study that attempts to measure this impact will end up being held hostage by the old assumptions, but I believe we will have a higher growth with the Cup than that we would have without it," the professor says.

But Mr. Borges says that other factors are difficult to measure, which can mitigate or even neutralize these positive impacts, making Brazil end the year closer to Mexico and Argentina than other countries where that effect was proven. "The effect of the Cup on business days is not clear. Although many companies are giving collective vacations, we do not know if they are accumulating inventories before the World Cup to offset [the impact], or will work more before or after the event," he says. “If the effect, in the Brazilian case, is gross or net (after adjusting for the negative effects), we will only know in three or four months.”

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