Can World Cup Victory Save Spain from Recession?

♠ Posted by Emmanuel in , at 7/09/2010 12:33:00 AM
Okay, I'll bite: journalists often have novelty articles right about this time about how the World Cup spurs the economic performance of victorious countries. Nowhere does there appear more of a need of such a victory than the two finalists, the Netherlands and Spain. The Netherlands has won every match it's played in the tournament so far. Meanwhile, I honestly believed Spain were going through after "Paul the Psychic Octopus"--who correctly predicted all German fixtures coming into the semifinal match against Spain--decided in the favour of the Iberians. (Some disgruntled Germans are calling for Paul to be barbecued in public! Talk about shooting the messenger.) And, it must be said, the Spanish side did a lot to keep possession away from the explosive young German team.

At any rate, Bloomberg has a timely piece on what that slight economic boost may mean. Spain has one of the highest unemployment rates in the developed world, hovering at 20%. Meanwhile, the Dutch are still on the ropes after rounds of bailouts for troubled financial firms (yawn) in recent years. Who wins, who loses? The economic fate of the two protagonists may hinge on the result; a 0.25% boost seems to be conventional wisdom among the economist class. How they arrive at such a figure I'd like to know. In particular, the hope is that Dutch consumers won't be "going Dutch" in the event of victory...
The real winner after this weekend’s World Cup final may be the economy of the champion, as either Spain or the Netherlands will get a boost from victory in the world’s most-watched soccer match, economists say. Triumph in the final at Johannesburg’s Soccer City on July 11 could add as much as 0.25 percentage point to annual economic growth for the winning team’s country from increased consumer spending, according to ABN Amro Bank NV [one of the big bailout beneficiaries, it must be noted] economist Hein Schotsman in Amsterdam. For Spain, that could mean expansion this year instead of a projected contraction.

The all-European final is giving people something to cheer about in the middle of the sovereign-debt crisis that’s rocking the continent. Both the finalists could use it. The Dutch, still wrestling with the bailouts of the nation’s biggest financial- services companies, saw their government fall in February, while one in five Spaniards is out of work, the highest jobless rate in Europe...

Neither country has won the quadrennial tournament before, and both already are benefiting from increased exposure internationally. Spain is making its first appearance in a World Cup final after beating three-time champion Germany in their semi-final on July 7. The Dutch have been runner-up twice, the last time in 1978 against Argentina. “We should be proud, such a small country!” coach Bert van Marwijk told Dutch television NOS after his team won their semi-final by beating Uruguay.

A World Cup victory may boost Dutch consumer spending this year by 700 million euros ($887 million), or 0.25 percent, said Charles Kalshoven, an economist at ING Groep NV in Amsterdam. “The economic recovery still leans on restocking and exports, with domestic demand lagging, so increased consumer spending would be very welcome now,” Kalshoven said.

The Dutch economy, the fifth-largest in the euro zone, is set to expand 1.25 percent this year, the government forecasts, while Spain, whose gross domestic product is twice as big, projects a 0.3 percent contraction. The European Union in May estimated Spanish GDP will fall 0.4 percent this year, while the Netherlands will see 1.3 percent growth.

Italy’s triumph over France in the 2006 World Cup led ABN Amro to raise its forecast for growth in the Italian economy that year by 0.2 percentage point to 1.7 percent, saying “happier consumers spend more.” In the end, GDP expanded 2 percent in 2006, a six-year high, according to EU data. [So there is some recent precedent behind these calls in Europe.]

“Dutch consumers, traditionally conservative spenders, will become euphoric if the country wins the World Cup, boosting economic growth as they step up spending,” said Schotsman. On the other hand, “Spain could prevent full-year economic contraction by winning,” said Schotsman, the author of an April report titled “Soccernomics 2010” that predicted a Spanish triumph this year...

Spanish Industry Minister Miguel Sebastian said economists may raise their GDP forecasts for his country if its soccer team triumphs. Victory would improve Spain’s image internationally and boost the prospects for domestic spending, he said yesterday, according to Efe newswire.

Companies already are benefiting. Madrid-based broadcaster Gestevision Telecinco SA, which holds the Spanish rights to the main World Cup games, climbed 5.4 percent yesterday after Spain secured its place in the final. Holland Screen Video, based in Roosendaal, the Netherlands, yesterday rented out the last of its 12 big screens for 21,000 euros. The 84-square-meter display is headed to Barcelona where as many as 40,000 fans will be able to watch the game on it. “The boom came after the semi-final against Uruguay,” said Holland Screen Director Marcel Jooren.

Amsterdam-based Heineken NV, the biggest Dutch brewer by volume, said yesterday that “the World Cup success and the beautiful weather in the Netherlands” are lifting beer sales. Bavaria NV, the Netherlands’ second-largest brewer, won attention from a widely reported row with World Cup organizers over fans wearing orange dresses, which are distributed free with its beer, during the Netherlands’ game against Denmark on June 14. Orange is the official color of the Dutch team.
To my mind, both these teams represent the good guys. Having never won the World Cup, it will be nice to have a new champion. With Spain on the knife's edge between slim growth, no growth, and negative GDP, a win should certainly benefit the nation's psyche. However, I also feel for the Netherlands making it to the finals in 1974 and 1978 only to be defeated by respective hosts Germany and Argentina. Let's watch and see!

11/7 UPDATE: Congratulations are due to Spain for winning the World Cup finals in extra time. I suppose congratulations are also due to Paul the Psychic Octopus who had a perfect record predicting the winner of all 2010 World Cup fixtures involving Germany as well as the finals. Now, let's see if a victory does indeed power the Spanish economy forward. I certainly am pulling for them!