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Spain’s Euro 2012 victory could give economy brief ‘feelgood boost’

July 2, 2012

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Celebrations provide brief distraction from economic crisis in country where more than half of young people are unemployed

Spain’ s exuberant celebrations as champions of the Euro 2012 football championships could give a boost to the country’s beleaguered economy.

Raj Badiani of IHS Global Insight said: “With the World Cup [which Spain won in 2010], we saw a rather large and unexpected boost to spending. A lot of it was obviously people going to bars and restaurants and the post-victory celebrations as well. [Spanish] retail sales figures have been appalling, so any boost will be very, very welcome.”

A red-and-yellow sea of fans swept through Madrid for an all-night party on Sunday, after Spain hammered Italy with a 4-0 win, to gain their third straight international title. The festivities provided a brief distraction from the dire economic crisis that has engulfed the country, where more than half of young people are unemployed.

Michael Hewson of CMC Markets said: “You probably get a bit of a boost on retail sales, mainly alcohol. There may be a bit of a feelgood boost but underneath all that the problems are still there.”

Data out on Monday morning showed that Spain’s manufacturing sector suffered its worst month in June for more than three years. The purchasing managers’ index came in at just 41.1, showing that output fell sharply and at a faster rate than May. Economists had expected a weak figure, but this was even worse than they forecast.

Unemployment figures, also out on Monday, showed Spain has the highest jobless rate in Europe, at 24.6% in May, up from 24.3% a month earlier. Unemployment among the under-25s continued to escalate to reach 52.1%.

Analysts say any boost from the football will have a very limited effect on an economy with such deep-rooted problems. Christian Schulz of Berenberg Bank said: “In Spain, a rebound in consumption is the least likely factor to drive any turnaround. The Spanish households have very high priv ate debt due to their mortgages and they simply need to save; any positive development in income will go into a higher savings rate. Domestic demand is unlikely to be a driver of growth.”

In 1998, France’s World Cup victory coincided with a boom in consumption. Schulz said: “It’s fair to say that had a positive impact on confidence. It also came at the early stages of the dotcom boom; it had an effect but it’s hard to say how significant it was.” Read More

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