Paris Olympics Boosts Eurozone Economy as French Service Sector Hits 17-Month High

The Paris Olympics has given the eurozone economy a significant boost, with spending from athletes and spectators pushing the French service sector to its highest monthly production level in 17 months. Despite this uplift, economists caution that underlying weaknesses persist in other areas of the eurozone.

Paris Olympics Drives Eurozone Spending Surge, Boosting French Service Sector Amid Broader Economic Challenges

The eurozone economy has experienced a significant increase in spending due to the Paris Olympics, which attracted many athletes and spectators to the French capital for the summer sporting event.

According to data from a closely monitored business survey, the French private sector's monthly production reached its highest level in 17 months in August.

The figures for the 27-country bloc were bolstered by the growth in activity, which was driven by the French service sector as millions of travelers flocked to Paris for the two-and-a-half-week sporting event, according to economists.

In August, the eurozone composite purchasing managers' index (PMI), administered by the Hamburg Commercial Bank and S&P Global, increased from 50.2 to 51.2. A value greater than 50 indicates growth.

Nevertheless, experts cautioned that the Olympic lift obscured subpar performance in other sectors. This was due to a decline in activity throughout the eurozone, primarily driven by a loss of manufacturing output in Germany.

Bert Colijn, a senior economist for the eurozone at the Dutch bank ING, stated, "Eurozone manufacturing continuing to resemble Germany's performance at the Olympics: a big disappointment."

Hosting the Olympic Games can generate economic benefits by promoting the events industry, tourism, and construction and increasing the global visibility of host countries and businesses.

Olympic Games Generate Billions in Economic Benefits, But Analysts Warn of Broader Eurozone Weakness

According to the UK government, the British economy was anticipated to have generated up to £41 billion in 2020 by hosting the London 2012 Olympic and Paralympic Games. According to the International Olympic Committee, the Paris Games are projected to create an economic benefit of $12.2 billion (£9.3 billion) for the Île-de-France region. The 2028 Los Angeles Games are expected to generate an output increase of $18.3 billion.

Nevertheless, the net impact of significant sporting events is challenging to quantify, as they can displace activity in other areas and benefit specific sectors of the economy.

The French service sector received a lift, but analysts cautioned that the underlying picture for the eurozone economy was weak enough to justify another interest rate cut from the European Central Bank.

Cyrus de la Rubia, the chief economist at Hamburg Commercial Bank, said: “A closer look at the numbers reveals that the underlying fundamentals might be shakier than they appear.

“The boost primarily comes from a surge in services activity in France, with the business activity index jumping by almost five points, likely linked to the buzz surrounding the Olympic Games in Paris.

“It’s doubtful this momentum will carry over into the coming months, however. Meanwhile, the overall pace of growth in the services sector has slowed down in Germany, and the eurozone’s manufacturing sector remains in rapid decline.”

A robust increase in new order intakes, facilitated by businesses' optimistic assessment of the domestic economic outlook, resulted in a rise in output to the highest level in four months, as indicated by separate PMI figures for the UK.

The composite output index of the UK PMI increased from 52.8 in July to 53.4 in August.

According to Thomas Pugh (via The Guardian), an economist at RSM UK, the figures indicate that the Bank of England will likely delay cutting interest rates until November before further action is taken. He further stated, "The August PMIs indicate that the economy is continuing to recover from the recession of last year, with employment and output increasing and confidence remaining high."