Thursday, April 5, 2012

Economic glow seen fading fast for UK

LONDON (Reuters) - If Britain was hoping the Olympics would mark a turning point for a struggling economy, then it is in for a disappointment despite the government's efforts to cash in on the Games.

Economists reckon the Games will, at best, give the economy a minor and temporary fillip. The Olympics could lift the mood of a country in the grip of austerity measures, but experts say it will be difficult to maintain that momentum.

Britain has dropped its traditional reserve and is going for the hard sell when the Olympics returns to London for the first time since 1948.

A tourism campaign backed by Prince Harry and pop star turned designer Victoria Beckham is rolling around the globe branding Britain as "GREAT" to try to bring in millions of additional tourists in coming years.

At home, rules restricting shopping hours on Sundays will be suspended for the summer to help retailers to make the most of the event.

Aware of the allure of the Olympics for company chiefs and keen to show off British know-how, the government is staging a series of business summits to coincide with the event.

However, most economists believe the Games, backed by 9.3 billion pounds of public funding, will provide only a temporary boost to growth before their impact fades.

"I'm sceptical about the impact of the Games, to be honest," said Brian Hilliard, of Societe Generale.

"If you look at some of the analysis of past Olympics they do show that the regular tourist tends to stay away. The big impact has already been seen with infrastructure spending which will end on the day before the Games," he added.

Hilliard said there would be a temporary boost in the third quarter thanks to the July 27-August 12 event. The effect should be amplified by comparisons with a weak previous quarter when Britain has a series of public holidays.

Calculated from the projections in the Bank of England's latest Inflation Report, Hilliard says the central bank has pencilled in growth of 1.1 percent in third quarter after the projected contraction of 0.2 percent quarter on quarter in the previous three months.

The government's own economic watchdog is also cautious, seeing a smaller upward tick in the Olympic period when sales of millions of Games tickets flatter the figures slightly.

"We assume that, apart from the ticket sales effects, the Olympics will not have a material effect on the quarterly path of GDP," said the Office for Budget Responsibility (OBR).

"This is consistent with a number of studies which suggest that the overall economic impact is likely to be small."

SALES DRIVE

In the midst of a grinding seven-year austerity programme, imposed to deal with the hangover from the financial crisis, Britain is determined to make the most of its Olympic summer.

"The Olympic Games is the biggest opportunity the UK will get in a generation to showcase the UK," said Alan Collins, who works for a government department that promotes business.

"We're determined on the business side to seize that Olympic gold moment to try to do the best we can for the economy, for jobs and for prosperity," added Collins, managing director, Olympic Legacy at UK Trade and Investment.

Collins said British companies were already in demand in fast growing economies such a Russia and Brazil which will host winter and summer Olympics over the next four years.

The government produces impressive figures for the impact of the Olympics - forecasting an eventual extra 1 billion pounds in revenues from the business drive and double that from tourism.

However, short-term prospects are less rosy.

Balfour Beatty, Britain's largest construction company which developed the Olympic Aquatics Centre, has said it is likely to cut jobs under a cost-saving plan.

Stefan Szymanski, professor of sport management at the University of Michigan, says the Olympics are expensive and talk from politicians of an economic dividend was misplaced.

"The Olympics are not viable as a private commercial enterprise. It needs a public subsidy," he told Reuters.

"We have to have a justification hence the bogus claims that there is an Olympic benefit. We are paying for a party for other people in our own backyard. That is going to cost money," added Szymanksi, a Briton.

"FEELGOOD FACTOR?"

Retailers are hoping that the Games and celebrations in June of The Queen's Diamond Jubilee will help to get hard-pressed consumers spending again.

"The British consumer, given a reason to celebrate, is particularly resilient and will save for those (events) and will make sure that they have a decent time," said Jim McCarthy, Chief Executive of discount store chain Poundland.

There are precedents for major sporting events helping to revive large European economies.

Germany experienced a "feel-good factor" when it hosted the 2006 soccer World Cup - a combination of good weather, a run to the semi-final and a general feeling it was putting on a fine show boosted the national mood and drove spending higher.

Europe's largest economy duly grew at its fastest rate in six years. A University of Bonn study concluded the tournament had a lasting positive psychological impact on consumers, contributing to increased investment as well as spending.

However, economists believe the heady Olympic atmosphere will fade swiftly once the athletes leave town.

"If the Olympic Games goes well and there is a boost to the economy, it's hard really to see it as being anything more than a blip," said Howard Archer of IHS Global Insight.

"Once the Games are over, people are still faced with the same economic problems," he added.

REVIVING EAST LONDON

The money Britons have already ploughed into the Olympics has transformed a derelict area in the poor east of the capital into an attractive park dotted with state-of-the-art stadia.

Australian developer Westfield has opened Europe's biggest urban shopping centre on the edge of the site in Stratford and many sports fans will pass through the mall on their way to the Games.

Robin Wales, the ebullient local mayor for Newham, says the Olympic investment will prove a boon to his borough - one of the poorest in the country.

Westfield has created 2,500 jobs for local people, he said.

"They (Westfield) are running way above the numbers they expected. It's an incredible story of success but that's the thing about the East End, people don't realise the untapped talent here."

However, an Olympic divide is evident at the Games site.

Across a busy road from Westfield stands the 1970s Stratford Centre, home to high street staples such as supermarket JSainsbury Plc and stationer WHSmith as well as independent market stalls.

"Westfield is very busy. As soon as people come out of the station they are in Westfield, they don't have to come here," said Narendra Jivray, a salesman at "City of Leather", an outlet selling jackets in an arcade at the back of the centre.

"But all around London it's the same, nobody is spending money."

(Additional reporting by James Davey; Editing by Andrew Heavens)

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