World Cup: Already a bust for Brazilians?

People run away from tear gas fired by police during the fifth day of subways workers protest in Sao Paulo June 9, 2014. REUTERS

When the 2014 World Cup kicks off Thursday in São Paulo, the famously rabid fans of the seleção, Brazil's storied national soccer team, will expect nothing less than victory in the quadrennial soccer tournament. What they shouldn't expect for the nation is a glorious payday.

Economic forecasts suggest that Brazil will derive only modest economic gain from the World Cup. The Brazilian government has spent upwards of $15 billion to host the games, or roughly as much as the U.K. laid out for the 2012 London Olympics and more than triple the cost of the 2010 World Cup in South Africa. In return for those hefty expenditures, Brazil is likely to see a modest 0.1 percent to 0.2 percent bump in annual growth, estimates Société Générale analyst Dev Ashish.

The vast sums of money spent on building stadiums and other facilities are also driving up Brazilian inflation, a painful price of admission for a country where more than a fifth of inhabitants live in poverty.

"The negative side effects of hosting the WC include a lingering boost to inflation and an increased fiscal burden ... to fund the investments, whereas the bulk of the returns to be generated by the [World Cup] will be realized only with a substantial time lag and considerable uncertainty," Ashish wrote in a recent research note.

The Brazilian government certainly expects a bigger boost. A study by Ernst & Young and Brazilian think-tank FGV projected that financial gains from the tournament will amount to five times the government's investment, creating millions of jobs and ultimately adding more than $50 billion to the country's economy.

In the short term, the tournament is expected to draw an estimated 3.7 million tourists. FIFA, global soccer's governing body, said last week that the World Cup would generate revenue of $4.5 billion, according to Brazilian wire service ITAR-TASS.

Brazil President Dilma Rousseff, whose approval ratings have slid in the run-up to the Cup and who faces reelection in October, is no doubt hoping for such a lift. Economists have ratcheted down their growth forecasts for the country this year. Analysts with Citi Research project GDP growth of only 1.3 percent in 2014 and predict that the World Cup will have a "very mild" impact on economic activity in Brazil.

In another troubling sign, the percentage of working-age adults who have a job or are looking for employment in Brazil has drifted down and now hovers near an all-time low.

Brazil's stuttering economy, coupled with public anger over the heavy spending to stage the event, has led to more than a year of anti-government protests. Workers now are threatening to disrupt the Cup. Striking subway workers fought with Brazilian police in São Paulo Monday, with unions threatening to halt service through the opening match on Thursday between Brazil against Croatia. Teachers in Rio de Janiero are also on strike, while other industries, and even the police, have staged periodic work stoppages.

A recent Pew Research Center survey found that 67 percent of Brazilians are dissatisfied with the state of the economy. More than 6 of 10 objected to the World Cup because it diverts government funding from other priorities, such as schools, health care and public services.

If many Brazilians are unlikely to directly reap much in the way of financial rewards from the Cup, one group could benefit -- if Brazil takes home the trophy. Every country that has won the tournament since 1974, except one, has seen a short-term rise in stock prices, according to a recent analysis by Goldman Sachs (GS).

"[I]n the absence of a severe economic crisis, the winner tends to enjoy the spoils of success in the market for a brief period at least," the bank concluded.

By contrast, the public's mood, and even public markets, could darken if the unthinkable happens and Brazil, the only country to have won the World Cup five times, exits from the tournament early.

- With reporting from The Associated Press

  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

Comments

Market Data

Market News

Stock Watchlist