Economists expect failed Paris bid to hit confidence

As the disbelief, then the despair sank in, and dejected supporters of the Paris Olympic bid trudged quietly home in the rain, economists in France began counting the cost of London’s victory.

The International Olympic Committee’s vote to stage the 2012 Games in London, instead of favourite Paris, deals a fresh blow to efforts to lift France’s flagging economic fortunes.

Backers of the Paris bid had argued it would create tens of thousands of new jobs – most of them in the last few years before the games – and boost everything from tourism to foreign investment.

But Marc Touati, chief economist at Natexis Banques Populaires, said the blow to the nation’s ego probably outweighed the direct benefits France will now miss out on – which he says could have peaked at about 1% of additional economic growth in 2012.

“The real impact that we’re going to feel straight away will be on confidence,” Touati said.

Amid 10.2% unemployment, lower-than-expected economic growth and an identity crisis deepened by European Union enlargement and May’s ‘no’ vote in the EU constitution referendum, he said, “France is mired in low confidence. There’s a feeling we’re doomed to failure.”

Property prices could also suffer, he said, days after a renewed warning from the Bank of France that the latest double-digit annual rise in real estate prices is beginning to look like a bubble.

“We’re in a situation which is very sensitive and any bad news can trigger sales and reduce demand,” he said, adding that the impact could be felt within weeks.

French bank BNP Paribas was more cautious about the effect on property prices, saying the failed bid does nothing to alter the market fundamentals driving the steady rise.

But BNP Paribas economist Raymond van der Putten agreed that the Olympic defeat would make it harder for the government to turn around France’s anaemic growth, persistently high joblessness and weak consumer and business sentiment.

The outcome is the more galling for Paris because it had more to gain from a successful bid, van der Putten said. “It would have boosted the economy more than in Britain, which isn’t doing that badly.”

However, both economists said the real fallout of the vote paled to insignificance compared with the more chronic problems faced by France, as well as many of its neighbours – including high oil prices and the strength of the euro, which hurts euro-zone exports.

“For French growth, it would still be better to have a weaker euro and no Olympics than the other way round,” Touati said.