The World Cup 2018: How much optimism is justified?
Russia is hosting the football World Cup these days and doing it pretty well, according to everyone. In this report we estimate the costs and benefits for the Russian economy associated with the World Cup.
The headline cost figure is $13 bln, which is close to the 2014 Brazil cost ($15 bln). But only $4.2 bln was spent on sports infrastructure. Most of the funding was used to improve transportation infrastructure. We see these investments as positive in terms of economic effects, although not large enough to significantly affect a $1.5 trln-sized economy.
One of the reasons for our relative optimism is that investments were dispersed among 11 regions hosting the matches, so the money went not only to Moscow, Saint Petersburg and Sochi, but to other major cities as well. The 2018 World Cup preparation program was funded largely from the federal budget and allowed the cities to improve aging infrastructure. As we noted in previous publications, the Russian budgetary system is highly centralized, so regions may have extra expenditure obligations but have little space to improve their revenue base. The World Cup program gave them extra funding for their investments.
We expect that the 2018 World Cup will exert a positive short-term economic effect of approximately 0.1-0.2 percentage points of GDP growth in 2Q-3Q18. The main effects will come from $2.0-2.5 of foreign tourist expenditure and increased domestic household spending (internal tourism, leisure & entertainment activities, etc.).
The government report estimates that the positive effect on the economy from the World Cup is RUB 867 bln (about $14 bln at the current FX rate), close to the games’ total expenditure. For this reason, authorities expect the tournament to break even. We note that the long-term effect will depend heavily on whether the new infrastructure will further boost economic activity, and whether increased foreign tourist inflow will be sustained.
Improved national brand recognition and better public relations are additional significant gains for Russia from hosting the World Cup. It is difficult to estimate, but after the World Cup, Russia will probably be seen as less hostile and antagonistic in global public opinion.
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