CAIRO: As the 2006 World Cup enters the next stage of competition, millions worldwide will scrutinize the performance of all the teams in the semi finals. Yet, while the rapture of global audiences is limited to the brilliant tactics of strikers such as Ronaldo and center midfielders like France’s Zidane, a new crop of World Cup viewers will be avidly watching the performance of the teams for a whole other reason.
For decades, economists have studied the direct relationship between the performance of world cup teams and the effect their performance has on their national economies. The results of such studies have found that World Cup winners’ economies have improved while the losing finalist’s economies have suffered. According to ABN Amro’s Economic department’s study, entitled, “Soccernomics 2006, a World Cup winner enjoys an average economic bonus of 0.7 percent additional growth, while the losing finalist suffers an average loss of 0.3 percent compared to the previous year.
Since 1970 there have been two major exceptions to the winner- takes-all rule, according to the ABN Amro study. In 1974 and 1978 the German economy and Argentine economy respectively experienced a sharp downturn (in the latter case even a deep recession) after the national teams became world champions. The economy of the losing finalist, (the Netherlands, in both these cases), also suffered, but far less so than the victor’s.
However, when the Netherlands became the European champion in 1988, the correlation was again confirmed: economic growth that year was sharply up on the previous year. And the stock market also performed very well, with the Amsterdam stock exchange gaining no less than 29 percent over the year.
While evidence of the correlation between the performance of a stock market in regards to World Cup champions is weak, during the last three World Cups the winning country’s stock market performed much better in relative terms than the losing finalist’s. On average, a positive return of 10 percent for the world champion and a negative return of 25 percent for the losing finalist were noted.
ABN Amro is not the only banking group to track the link between football and economics. A study conducted by Goldman Sachs, entitled “The World Cup and Economics 2006 also states that football has an impact on economies. According to them, while the effects at the macro- economic level and on the financial markets are not so great that they can turn a recession into a boom, they should not be underestimated. As with ABN Amro, Goldman Sachs also notes that past figures clearly show that economic growth among world champions tends to outstrip that in the losing finalist countries during a World Cup year.
Both studies attribute the economic effects derived from the performance of national teams during this premier event to consumer confidence – in other words, the feel-good factor. While ultimately psychological, the fact is, happy consumers are more inclined to spend. Parties in winning countries last longer (which means higher turnovers in supermarkets and bars) and the souvenir markets (selling jersey’s, caps, footballs and other merchandise) also thrive for that coming year.
ABN Amro notes that consumer confidence can be boosted by football results, which is illustrated by developments in the Netherlands at the time of the 1988 European Championship. Over the first half-year of 1988, most Dutch consumers were still pessimistic, but after the victory in June the index turned positive and was 7 points higher on average during the second half year. Consumers were also much more upbeat about both the past and the future. Like consumers, businesses can also be affected by football-related developments. A country that attracts attention will find it easier to establish trade and investment relations with other counties. After all, economic relations’ start with contact between real people, and soccer may well help to facilitate such contacts, states the study.
Economist Samir Radwan, managing director of the Economic Research Forum, agrees with this, although he sees it from a slightly different perspective.
“There [are] statistical fallacies all the time, when economists correlate anything with anything. We have to differentiate between cause and effect. The truth is, good performers in football usually have better economies to start off with. So we can say that the reason they are good players is because they have better economies that spend more money on their teams and training,” he said.
According to Radwan, the question isn’t why better performers have better economies, but how the impact of winning and losing affects the economy.
“Sometimes you have to look at the economy at the time, because I believe this can have an effect on the terms, rather than just the other way round, states Radwan.
Brazil’s loss to Italy in the 1982 world cup is a fine example of this theory. The Latin American debt resulting in no growth in income per capita, as well as hyperinflation and the impeachment of the President could be one of the reasons why Brazil’s head was not in the game (especially when you take into account that they had one of the best teams ever). However, in 1994, when hyperinflation became a thing of the past, Brazil won the World Cup. And in 1994, when they lost to France, the economy again struggled. Is it a case of the economy pulling the winner or the winner pulling the economy?
“Weaker economies that witness a sharp peak in economic performance when their country’s are reigned champions can absolutely be attributed to consumer confidence. The impact of winning and losing (on the economy) is linked due to the euphoria, and consumer confidence of a winning nation, or the depression and sadness witnessed by losing countries, he says.
For Egypt, the African Cup of Nations and the economy are a good example of the correlation between the two.
“During the tournament, Egyptians were out buying flags at LE 20 a piece, says Radwan. “People were going out to eat, were having celebration parties at home, buying paraphernalia. And this went on for months after.
While data on consumer spending in relation to the African Cup does not exist, states Radwan, because the country lacks solid, updated consumption statistics, Radwan is left in no doubt that Egyptian consumers spent more during that season.
“I can assure you, that even without any hard evidence, consumption in Egypt jumped when Egypt won the African Cup, he states.
