The French football team is all set for the FIFA World Cup final in Moscow on Sunday, but would a football win propel France into the leading position in Europe in terms of growth too?
And looking to the euro area at large – would it make up for Germany’s defeat in the early stages of the competition and Spain’s poor performance? Or to put it another way – we may wonder whether the ECB may consider changing its monetary policy stance if Mbappé and Griezmann were to score during the final.
We can view the potential impact of a World Cup victory on growth in two ways, i.e. long- and short-term.
Firstly, we can analyze the potential effect on the pace of economic activity in the long term and there is very clearly no impact in this respect. Even in a popular sport like football, can we really expect a win to change companies’ investment strategies, bolster productivity gains or trigger dramatic shifts in the way households divide their budgets between spending and saving. If we look back to previous World Cup winners, there is clearly no evidence of this kind of impact. There were no lasting effects in France after its victory in 1998 and more broadly speaking, the multi-cultural aspects of the 1998 team and their wider application to French society do not seem to have influenced sociology trends in the country either. The only reminders 20 years down the line are the star on the French team’s football shirt and the chances of the winning team’s players having a second career as TV commentators.
Secondly, looking to the short term, we would all like to believe that a French win would have an impact as winning makes people happy after all, and France demonstrating astounding talent would create a party atmosphere and potentially encourage everyone to go out more. This may lead to a slight uptick, but there is no reason to believe that it would spark off an economic watershed.
A World Cup triumph can be viewed as a positive shock, unlike a terrorist attack for example, which provides a clearly negative shock and leads to more cautious and fearful behavior in the short term, as citizens tend to wait and see, opting to stay at home for fears of a fresh attack. However, the long-term effects are less obvious and the negative impact on macroeconomic stats is barely visible more than a month or a quarter after the event. A win for France on Sunday would have an identical but positive impact, which we can quantify by looking at the margin for positive error economists give when they issue their projections: if France wins this weekend, consumer spending figures could move towards the upper end of this margin.
A win from Hugo Lloris and his teammates would lift spirits across France, with a pride that the country remains a great nation and is still very much relevant because it won the World Cup. But in my view, that’s as far as the effects of a victory would go in the long term.
If we take this logic further and apply it to Germany, we can rest assured that there won’t be a massive recessive impact from Germany’s defeat. Phew…the ECB can keep on its merry way uninterrupted after all.
Philippe Waechter - Chief Economist - Ostrum Asset Management