Olympics will pull UK out of recession

Last updated: May 3rd, 2012
News by Ruth Emery
Olympic park

The Olympics will help bring the UK out of recession this year, as economic growth should surge on the back of increased consumer spending and Olympic ticket sales.

Shona Dobbie, head of the economic research centre at Alliance Trust, believes that the UK will have strong growth this summer as although most Olympic tickets were bought in the second quarter of 2011, they will only show up in GDP figures for the third quarter of 2012 - when the Olympics actually take place.

Ticket sales reportedly amount to around £300 million, or 0.1% of GDP.

Expected growth

Last month, GDP figures for the first quarter of 2012 showed that the UK was officially back in recession. In the first three months of this year, growth contracted by 0.2%, which followed a drop of 0.3% in the last three months of 2011.

Dobbie says that GDP figures for growth between April and June may remain negative, but there should be a big increase in GDP between July and September, pulling the UK out of recession.

She adds: "This will be an extremely volatile year, and the Olympics effect makes it very hard to make forecasts for the following years."

Dobbie predicts that overall GDP growth in 2012 will be around 0.3%, with most of the positive impact coming from the Games.

James Carrick, economist at Legal & General Investment Management, agrees that the Olympics will have a positive impact on the UK economy.

"There may be a slight dip in the second quarter as we lose an extra day [with the bank holiday] for the Queen's Jubilee. But there will be a boost in the third quarter, it will be positive growth that will decisively pull the UK out of recession," he says.

"But post-Olympics, economic growth will likely dip lower again."

However, Richard Morawetz, a vice president at ratings agency Moody's, downplays the impact the Olympics will have on the economy. He says there will only be a "short-term boost' and that tourism will have a smaller impact than "the gross visitor numbers would suggest'.

He adds: "The impact of infrastructure developments in UK GDP has probably already been felt."

Earnings uplift for the transport sector is also not clear-cut, he argues, as "lower-margin tourist travellers may displace business travellers during the Games".

According to Morawetz, the advertising and marketing sectors will likely benefit from the Games and also the UEFA European Football Championship happening this year.

The Olympics' corporate partners, such as Coca-Cola, Acer, McDonalds and Visa, may see a boost to their share prices.

This article was written for our sister website Money Observer