Olympic cancellation wouldn’t be an economic shock

  • With the number of confirmed infections of the new coronavirus rising in Japan, cancellation or postponement of this year’s Tokyo Olympics is becoming a possibility worth considering. The key point in terms of the economic impact of such a move is that most of the spending for the Olympics has already happened. Spending during the Games themselves is small, perhaps just 0.2% of GDP, and much of this is diverted from spending in other areas of tourism and recreation.
  • The Summer Olympics are scheduled to be held in Tokyo from 24th July to 9th August. Unless the coronavirus spirals completely out of control, it is very unlikely that Japan would agree to a cancellation. The Games could be postponed, but that would merely shift the timing of the economic impact.
  • Most of the spending associated with the Games has already happened. A 2016 study by the Bank of Japan estimated that Games-related construction spending would peak at around 0.6% of GDP in 2018 and would be less than 0.2% of GDP this year. Any construction projects still ongoing would surely be finished even if the Games were cancelled. It’s difficult to pin down the precise amount of spending required to run the Games, but we estimate that it would be no more than ¥500bn or 0.1% of GDP.
  • The experience from previous Olympic Games is that they don’t result in a major boost to tourist arrivals. Hosting the Games seems to put off as many visitors as it attracts. (See Chart 1.) Admittedly, hotel charges may rise during the event which may explain why spending by overseas visitors jumped by 17.6% m/m during the month of the 2008 London Olympics Games. But that boost soon reversed: spending slumped to a 21-month low two months after the Olympics. Similarly, the net impact of the 2000 Sydney Olympics on travel spending was negligible.
  • What’s more, there is little evidence that the “feel-good” effect from the Olympics boosts consumer spending. Retail sales were exceptionally strong around the time of the September 2000 Sydney Olympics, but that was only because they rebounded from a slump after the introduction of the goods and services tax on 1st July. They were only a little stronger than otherwise during the Beijing and London Olympics but weaker during the Atlanta, Athens and Rio de Janeiro Games. (See Chart 2.)
  • The bigger concern for Japan’s leisure industry which may be hoping for an Olympics boom should be that the global outbreak of the coronavirus leads the recent slump in tourist arrivals to drag on for months. If tourist arrivals remain weak all the way to the Olympics, that could reduce GDP growth by as much as 0.4 %-pts. But cancelling the Games on top of that would have negligible additional impact.

Chart 1: Tourist Arrivals Around last five Olympic Games (Selection Year = 100)

Chart 2: Retail Sales Volumes (% m/m)

Source: Refinitiv, CEIC

Sources: Refinitiv, Capital Economics

Marcel Thieliant, Senior Japan Economist, +65 6595 1514, marcel.thieliant@capitaleconomics.com

Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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