The Olympics: A False Start for Brazil

On Friday, July 29, 2016Category: Ludovic Subran
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Rio. Image courtesy of Jaime Spaniol, unsplash.com.png

If you take a good look at the Olympic Games, what do you see?

Ever present multinational brands? Athletes gripped with joy? Or maybe politicians, explaining away why the benefits outweigh the costs.

Arguments surrounding the Olympiad’s wider impact are almost as old as the games themselves. From debt-ridden Montreal  to Russia’s profligacy in Sochi, from Barcelona’s revival to London’s rebranding. The debate rages on. 

Ahead of the Rio Olympics, we decided to dedicate a special report to the potential effect of the mega sporting event on the Brazilian economy. In the wake of the football World Cup in 2014, should Brazilians celebrate not only symbolic victories but also material ones?

Well, probably not that much.

The report, titled “The Olympics: A False Economic Start for Brazil", concludes there could be some boost to growth and job creation. But it may be limited in scope and short-lived, as can also be seen in this infographic.

Yet the Olympics will contribute to public debt, business insolvencies and – most of all – inflation. These effects should take place on local, state and federal level.

Here are the key findings, forecasts and figures ordered from ‘bronze’ to ‘gold’:

Bronze medal: growth and jobs. Just like the football World Cup, the Olympics will not provide a significant boost to Brazil’s economy. The games will contribute only +0.05 point to growth in 2016 and 120,000 temporary jobs. This will not offset the deep recession estimated at -3.5% in 2016, after -3.8% in 2015.

Silver medal: Public debt and corporate insolvencies. The Olympics will add +0.4pp worth of GDP to Brazil’s public debt level. This rather small increase (compared to a record acceleration) is concentrated in the State and the City of Rio de Janeiro and contributes to sub-sovereign risks. As for companies, bankruptcies linked to the games could reach +5% in 2016, and +12% among small and micro-enterprises.

Gold medal: Inflation. Inflationary pressures will be visible and long-lasting. We forecast +1pp added to inflation in 2016 (expected at +8.6%). Out of this combined effect of the sporting mega-events, only +0.4pp will be explained by the Rio Olympics.

So, this should serve as a great opportunity for Brazilians to put aside some of the country’s woes. Forget for a moment the latest round of high political drama, corruption allegations, and business shenanigans. 

But the road to a better future should be taken more like a marathon than a sprint. Better not look for the long term solution inside shiny new sports facilities.

Ludovic Subran 

Chief Economist 

Euler Hermes 

If you would like to learn more about Euler Hermes in your country or near you, feel free to visit our countries’ pages.


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