The World Cup and The World Market

Posted on August 17, 2010

Americans should be watching the World Cup, for more than just the unexpected success (and now unfortunate demise) of the American Team. Aside from the fact that the rest of world cares immensely about the World Cup, the world’s most important sporting event may have economic influences as well. According to Businessweek, Dutch bank ABN AMRO calculated that the last winners of the World Cup have seen an average stock market boom of 10 percent. However, the losing finalist saw on average a 25 percent drop in their stock market.

While South Africa may not have had the best team, they have still benefited from being the host country. In the short term, the tourist and construction industries receive a boom. In the long term, the country will benefit from increased infrastructure, foreign investments and permanent jobs. UBS Investment Research determined that preparations for the World Cup, which began four years ago, has increased the South African GDP by .5% to 2.0%. Additionally 300,000 new jobs were created, which contributed 2.7% to South Africa’s employment rate. On average, GDP in the three previous host countries grew by 1.8% during the year of the Cup. Although the World Cup has been cited as a one of the worlds’ largest productivity drains, maybe it’s just another way to anticipate world markets’ next moves.

The following blog was written by our lead intern, Michelle.  She is a junior at Wellesley College and is majoring in both Economics and Mathematics. If you are interested in posting your own blogs on the FX market, please contact us.  

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