ECONOMY

Better off after Games?

With the opening ceremony of the 2004 Olympic Games just four weeks away, the world appears to be focusing more and more on Greece, paying special attention to the question of security. Many Greeks, though, are not that much concerned as they are busy thinking what the day after the Games will bring in terms of their standard of living. Although the pessimists clearly win out, there are good reasons to believe they are wrong. Although it would be much easier to map the country’s economic course in the medium term if the outcome of the event were known in advance, the experience of other countries hosting the Games in the past, along with the Greek economy’s special characteristics, provide a good basis to start with. Initial slowdown First of all, it is reasonable to expect a slowdown in economic activity in the third and last quarter of 2004. This is supported by an expected drop in public investment spending and a deceleration in consumption growth similar to the 2.5 percent annual clip of the first quarter. Consumption grew by 3.4 percent in 2003 on the back of higher disposable incomes – the income left after paying taxes – and buoyant demand for consumer loans. Public investment spending should fall because all projects related to the Olympics will have been completed by mid-August at the latest and this expenditure represents the biggest chunk in the Public Investment Budget (PIB). The slowdown in GDP (gross domestic product) growth in the last two quarters of the year may be partially offset by a pickup in tourism but this should not be strong enough to make up for the difference. Instead, stories about the people who will lose their jobs after the Games should be expected to dominate the news, adversely affecting sentiment and probably consumer spending. Of course, this does not mean GDP growth will decelerate to 3.0 percent or less for the year after growing at 4.1 percent year-on-year in the first quarter. A GDP growth figure in the area of 3.3 to 3.8 percent seems to be likely for this year. Upgraded facilities Despite all the talk about the Olympics and their effect on the local economy in the years to come, it is often forgotten that private firms in the tourism sector have also invested money to renovate and expand their facilities. So, in addition to public infrastructure, private tourist facilities have been upgraded. This means Greece can offer better tourist services and accommodate a higher number of foreign tourists in the future. Of course, the success or not of the Games will play a crucial role in the return on this investment. The successful hosting of the Olympics is expected to attract about a million extra tourists per year, boosting the return on the investment. Even if the outcome is not ideal, the improvements should help attract foreign tourists with higher incomes in the years to come. Moreover, some of the venues constructed for the Olympics could bring in more revenues if they are put to the right use. All this may have not materialized had it not been for the Games. Productive use of funds Even the expected drop in public investment spending linked to the Games, which is seen contributing to an economic slowdown in the third and fourth quarter of the year, may turn out to be a blessing in disguise. This is because lower PIB spending will help take some pressure off the budget and keep the deficit from overshooting too much this year and help bring it below 3.0 percent of GDP in 2005. Moreover, the government will be able to channel more PIB money into projects co-financed with EU funds (CSFIII), especially from 2005 onward. These projects are supposed to be more productive than the ones already undertaken due to the Olympics and should also help boost public investment budget revenues from the EU, contributing toward a lower general government budget deficit. Given the fact that Greece has yet a long way to go to absorb EU funds under the Third Community Support Framework before the deadline of 2006 or 2008, if one takes into account actual disbursements, the authorities have every reason to keep PIB on track. Even if Greece is able to absorb the amount of EU funds it targets for this year, it will have absorbed less than 40 percent of the total sum earmarked under CSFIII. In addition, one should take into account gains in efficiency in transportation which translate into lower costs for companies because of the infrastructure projects completed faster thanks to the Olympics. The same projects will save Athenians time going to work and partly alleviate the problem of pollution in the capital. All these positive effects are difficult to quantify but should in general exceed the negatives of cost overruns. The same holds true when it comes to the brand-name recognition that Greek products and services will receive because of the Olympics. This, too, is difficult to quantify but will be undoubtedly more pronounced if the State presses ahead with plans to upgrade the quality of its export products and services, revamp its export organizations and give priority to product design, marketing and branding. Although foreign press reports have been preoccupied with the readiness of the venues and concerns about security, it is likely that shortcomings will not be such as to derail the Games. This should produce a sigh of relief and finally bring in recognition that a small country, despite all the mistakes and delays, was able to organize a decent to very good event. Having pointed to many of the positives, it does not mean there are no negatives related to the preparations for the Olympic Games which may indeed trim economic growth down the road. However, there is little evidence to suggest that there will be no tomorrow for the Greek economy after the Games as suggested by some pessimists. The deceleration of growth to more sustainable levels of 3.0 to 3.8 percent is indeed likely for the next couple of years but it has little to do with the Games and should not be viewed as bad.