Olympics' Economic Benefit Hard to Gauge

LONDON – London's successful bid to host the 2012 Olympic Games (search) will benefit some sectors of the economy, notably construction and transportation. Whether it will be an overall economic boon remains in doubt.

Shares in construction, transportation and advertising companies jumped Wednesday on the London Stock Exchange (search) after the International Olympic Committee (search) announced in Singapore that London had edged out the favorite Paris to host the 2012 Games.

But economists noted that staging the Olympics can be costly for a host city, that many of the jobs generated would be temporary and that London is already a popular tourist destination.

"Although there are many reasons why a London Olympics would be good for the U.K., our analysis finds that the economic benefits would be very small and not worthy of a gold medal," Paul Dales, a Capital Economics economist, said in a recent study.

London's victory over the other finalists — Paris, New York, Madrid and Moscow — is a particularly harsh blow to France, which economists said had more to gain economically from a successful bid.

"It would certainly have boosted morale in France, and that's what we need at the moment because the economy is not going so well," said Raymond van der Putten, a Paris-based economist with BNP Paribas.

A Paris win could have given French companies, consumers and policy-makers more courage to take on the country's economic problems including flagging growth and double-digit unemployment, van der Putten said.

"I think it would have boosted the economy more than in Britain, which isn't doing that badly," he said.

London bid organizers say $4.2 billion has been earmarked to hold the Games in London, with hundreds of thousands of jobs created.

VisitBritain, the country's tourism authority, said the Olympics could bring "well over ($3.5 billion) to Britain's visitor economy and will strengthen London's position as one of the world's top cities."

Some industries are banking on the scale of work needed to complete the rejuvenation program in the East End of the capital, where most of the Olympic events will be held.

"Regardless of the debts racked up for it, these things — whether it's trains, or motorways, whatever — improvement in transport infrastructure is good for the economy as a whole and they last for a long time," said Paul Guest, European economist at Economy.com.

The London Olympic Committee has the big task of upgrading the rundown area of Stratford, where the Olympic village will be built, and have stressed the long-term benefits. Prime Minister Tony Blair (search) said ahead of the voting that it was "not just about London as a great city. It's also about regenerating a whole area of London."

Under the current plan, five facilities — the Olympic stadium, the aquatics center, the cycling track, the hockey center and the indoor arena — would remain after the Games.

But the cost of the games is significant — Montreal will only finish paying off the debt on its 1976 games next year, while Athens failed to cover the cost of its 2004 Games because of the new infrastructure needed.

The Americans, who hosted the Olympics in Los Angeles in 1984 and Atlanta in 1996, made a profit as they already had extensive infrastructure in place and also maximized marketing and sponsorship.

Dales said hosting the Olympics may boost British economic output by about $15.8 billion, but that it would be only a fraction of the nation's overall $2.1 trillion worth of output in 2004.

"Moreover, spread out over the next 12 years, it would raise output by just ($1.3 billion), or 0.06 percent of gross domestic product per year," he added.

Although hosting the games will create 300,000 jobs, the bulk will be temporary and thus would be worth only 0.1 percent of one year's GDP, or $2.3 billion, Dales said.

Ross Walker, U.K. economist at RBS Financial Markets, said tourism would likely only see a lift as 2012 grew nearer and pointed to London's already strong standing in international tourism.

"London's almost at bursting point anyway at times in the summer," he said.

Walker added that the regeneration of the East End will come at a cost to local residents, with higher housing taxes already signaled. He also noted that other cities have been left with "white elephants" once major sporting events are over.

Walker and Guest both pointed out that the seven-year period until the Games make the benefits hard to gauge right now.

"I'm sure on balance it's going to be moderately beneficial for the London economy," Walker said, "but I'm not sure the benefits will be immediate or even at the end of the day that noticeable."