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The Guardian - UK
The Guardian - UK
Business
Richard Partington Economics correspondent

Paris Olympics gives eurozone economic boost after rise in spending

Passengers in the back of a taxi film themselves as they leave the Eiffel Tower decorated with the Olympic rings
Millions of tourists flocked to Paris for the two-and-a-half week sporting event. Photograph: David Goldman/AP

The Paris Olympics have provided a boost to the eurozone economy after a sharp rise in spending as athletes and spectators descended on the French capital for the summer sporting event.

Figures from a closely watched survey of businesses showed monthly French private sector output rose to its highest level in 17 months in August.

Economists said the growth in activity, fuelled by the French service sector as millions of tourists flocked to Paris for the two-and-a-half week sporting event, bolstered the figures for the entire 27-country bloc.

The eurozone composite purchasing managers’ index (PMI), conducted by the Hamburg Commercial Bank and S&P Global, rose to 51.2 in August from 50.2 a month earlier, where anything above 50 signals growth.

However, experts warned the Olympic boost masked a disappointing performance elsewhere, amid a slowdown in activity across the eurozone led by a collapse in manufacturing output, particularly in Germany.

Bert Colijn, a senior economist for the eurozone at the Dutch bank ING, said: “Eurozone manufacturing continues to resemble Germany’s performance at the Olympics: a big disappointment.”

Hosting the Olympic Games can deliver economic benefits, acting as a catalyst for construction, tourism and the events industry, as well as by raising the global profile of host countries and businesses.

The UK government estimated that hosting the London 2012 Olympic and Paralympic Games generated up to £41bn for the British economy by 2020. The International Olympic Committee estimated the Paris Games could produce a $12.2bn (£9.3bn) economic benefit within the Île-de-France region, while the 2028 Los Angeles Games could provide an $18.3bn boost in output.

However, while major sporting events can benefit some parts of the economy, they can also displace activity in other areas, making it difficult to quantify the net impact.

Despite the boost to the French service sector, analysts warned the underlying picture for the wider eurozone economy suggested the outlook was weak enough to warrant another interest rate cut from the European Central Bank.

Cyrus de la Rubia, the chief economist at Hamburg Commercial Bank, said: “A closer look at the numbers reveals that the underlying fundamentals might be shakier than they appear.

“The boost largely comes from a surge in services activity in France, with the business activity index jumping by almost five points, likely linked to the buzz surrounding the Olympic Games in Paris.

“It’s doubtful this momentum will carry over into the coming months, however. Meanwhile, the overall pace of growth in the services sector has slowed down in Germany, and the eurozone’s manufacturing sector remains in rapid decline.”

Separate PMI figures for the UK showed a rise in output to the highest level in four months after a robust upturn in new order intakes, helped by an upbeat assessment of the domestic economic outlook by businesses.

The reading on the UK PMI composite output index increased from 52.8 in July to 53.4 in August.

Thomas Pugh, an economist at RSM UK, said the figures suggested the Bank of England would probably wait until November before cutting interest rates again, and added: “The August PMIs point to an economy that is continuing to recover after last year’s recession with output and employment rising and confidence remaining high.”

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