There is no doubt that hosting the Olympic Games is an honor for any city or country, but what is more debatable is whether the Olympic Games can boost a country’s economy in the long run, what is also known as the Olympic effect.
With the London 2012 Olympic Games wrapping up last Sunday after sixteen days of sporting and entertainment bliss, finance experts and economists are wondering which way the Olympic effect will turn, i.e. whether London and the UK will continue to bask in Olympic glory, or suffer from a post-Olympic hangover. First let’s look at the basics.
The Olympic Effect and Infrastructure Developments
With any major sporting event comes the massive upgrading of facilities. For London, as with many cities before her, this has meant the development of sporting grounds, the upgrading of transport networks and an influx of billions of dollars worth of investment. From this perspective the Olympic effect looks positive; if we look at the previously dreary east London, the Olympics Games has successfully given this economically inferior region a gleaming makeover.
The Olympic Effect and Recent History
If we examine recent history the Olympic effect has proved to be quite drastic. If we base the Olympic Games effect on currency against the US dollar, most countries have seen an appreciation in their currency at least three months after the Olympic Games finish. After Turin and Athens, the Euro enjoyed an increase in value. The Canadian dollar surged briefly after Vancouver, and then dropped to previous levels. The Beijing Games cannot be included in this Olympic effect comparison as the Chinese currency is pegged to the US dollar.
It’s also useful to consider the preceding three Olympic Games for a more balanced outlook. The US dollar, the Australian dollar and the Japanese Yen all suffered a negative Olympic Games effect. All three currencies depreciated in value and only the Australian dollar managed to bounce back before three months passed.
The Olympic Effect and London
Unfortunately, it is difficult to isolate the Olympic effect as the Olympic Games do not occur in a vacuum. Larger economic forces still influence currencies in a major way, even if they don’t make the headlines, so the question of the London Olympic effect still remains. If trends are anything to go by, we may expect to see the pound sterling gain a few increments over the next three months, partly boosted by a massive increase in retail sales, which admittedly got off to a slow start. However, the Pound will still be largely affected by the European crisis, which has slipped off the radar over the past few weeks. Furthermore, the Chinese economy has seen recent decline in growth, which will likely cause a ripple effect across the globe, which could possible override any Olympic effect.
This is a guest post. Penny Munroe is an avid writer in finance related news and tips. Articles include sourcing the best Forex brokers to currency trading tips.
Image by metrue: FreeDigitalPhotos.net