Analyst: 2012 Olympics will give a (limited) boost to the U.K. economy

July 19, 2012

If it's time for the Olympics, then it's time for the inevitably rosy predictions about the huge economic boost that the Games will provide the host country. Earlier this month, British Prime Minister David Cameron predicted that the 2012 Olympics would boost the country's economy by $20 billion over the next four years.


Swedish table tennis player Jorgen Persson (Associated Press)

But Howard Archer, a London-based economist at forecasting firm IHS, predicts that the near-term impact will be significantly more modest. Archer does believe that the Olympics will provide "much-needed" growth to the U.K. economy in the third quarter after many months of economic contraction. But he believes that the major stimulative effect won't even extend into the fourth quarter, pointing out that there there are negative economic consequences of the games as well:

We expect the Olympics to lift overall GDP growth by around 0.3 percentage point overall in the third quarter. Positive contributions to GDP growth in the third quarter from the Olympics are likely to come from ticket sales, as well as boosts to retail sales, employment, tourism and consumer confidence.  These are [seen as] outweighing the adverse impacts on the economy from the Olympics that could come from a hit to productivity, transport snarl ups and some people leaving the UK to avoid the games ...

[I]t is also highly probable that the rate of growth will fall back appreciably in the fourth quarter with the result that GDP is likely to be only flat at best overall in 2012.

IHS hasn't calculated the long-term impact of the games, and Archer says that he is "very wary of any such estimates," such as Cameron's bullish prediction this month. Past games have made it clear that the long-term economic benefits of the Olympics for their host countries and cities are decidedly mixed.

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