COUNTRIES, FOOTBALL & THE ECONOMY
Brazil qualified easily for the 2018 World Cup and is currently in 2nd place in the FIFA World Ranking. The world-class talent and depth of its roster puts Brazil among the favourites to win the Cup (for a record 6th time). The young forward line is led by ‘Super-star’ striker Neymar who is expected to dazzle with his skillful dribbling, supported by Philippe Coutinho, Roberto Firmino and Gabriel Jesus. The economy is in much better shape than during the 2014 when Brazil hosted the tournament. Inflation and the policy rate are tracking at historically low levels and the current account imbalance has mostly been corrected, but growth has been uninspiring and the unemployment rate remains in double digits.
Argentina is in fifth place in the FIFA World Ranking, and is seen as one of the favourites to lift the World Cup. It struggled to qualify and is hoping that its #10 superstar captain, 30year-old Lionel Messi, will lead them to the ultimate soccer glory. The outlook for the national team in the 2018 World Cup seems brighter than that for the economy. Argentina experienced a shock to its (external) funding conditions, with the USD gaining more than 40% against the ARS between early December 2017 and late May 2018. The authorities’ firm policy response and the rebuild of risk premia across Argentine assets helped reduce the pressure on financial assets, but sentiment remains fragile.
After a stunning sporting feat in the late 1990s (winning 3-0 against Brazil in the 1998 World Cup final, and 2-1 against Italy in the final of the 2000 Euro Cup), the French national football team has gone through a long period of subdued performance. France has enjoyed renewed success over the past few years. Likewise, the French economy entered the new millennium in a relatively strong cyclical economic position, at least relative to Germany. With the election of President Macron, France’s image in the international arena is more positive, and the perception of the business environment has improved substantially. The French ability to rebound is equally applicable to the French soccer team. The team has improved in key departments.
In the form of champions Germany cruised to the 2018 World Cup finals, winning all ten of their qualifying matches. The German economy is in similar excellent form. After a few hiccoughs in the first quarter, the fundamental strength of the German economy is set to reassert itself in the remainder of the year. We forecast real GDP growth of 2.1% YoY in 2018. In football after ignominiously failing to qualify from the group stage of the 2000 European championships, the German football authorities undertook a root-and-branch reform of their coaching, academies and training schemes. History tells us it would be unwise to bet against Germany on the football field.
Portugal’s performance in the 2018 World Cup may well depend on how well it leverages one player’s skills – those of Cristiano Ronaldo – for the benefit of the team. Yet, leveraging excellence in one area for the broader benefit comes more naturally to an economy than for a football team. For example, the Portuguese economy continues to benefit from a strong export performance in food and beverages, and in footwear and clothing. Performance in football is different. Relying on leveraging one star player’s excellence also leaves a team vulnerable to shocks. A robust economy has a certain dynamism and good institutions which lend a capacity to adapt at low cost to such unexpected events.
If Brexit means Brexit, football means everything. It is little wonder, then, that the median English voter can name more Premier League strikers than sitting MEPs. For the typical football fan, Dele Alli’s flair is irresistible, while a politician’s swagger is irreconcilable. In the early stages, stamina is paramount: nothing is agreed until everything is agreed. When it comes to the crunch, composure is essential: a cliff-edge exit would constitute a severe hit to potential growth, with intergenerational ramifications. In truth, things are likely to be less glorious than the idealists would have you believe. This team lacks experience. Things will look better in 2022. England expects. But the rest of the world expects more.
Spain’s real GDP has grown faster than that of any other Euro area country since 2015, making it ‘the tiger of Europe’, and one that is likely to roar loudly at the 2018 World Cup. The new team coach, Julen Lopetegui, will count on a solid team of experienced players such as team captain Iniesta to guide the talented rising stars towards victory. Spanish progress at the World Cup looks as good a bet as anticipating a further sovereign upgrade. After falling down the ratings agencies ladder, S&P, Moody’s and Fitch have acknowledged that the government scored important goals by reforming the banking system, making the labour market more competitive, and reducing large government and current account deficits.
As the host nation, Russia did not have to qualify. Russia now ranks 66th in the FIFA ranking. The Soviet Union never managed to proceed past the Semi-finals. Russian football is arguably suffering from the same shortcomings as the economy: Dutch disease, an excessive role of the state, limited foreign integration and lack of competition. Russia’s economy emerged from a two-year-long recession last year, a downturn that was triggered by the sharp fall in oil prices and the imposition of international sanctions in 2014. Cumulatively, output fell by 3.7% in the recession and the recovery has been slow. The government is also reported to be developing a programme to invest in infrastructure to support the economy.
Uruguay has a successful and proud football heritage, as one of only eight nations ever to win the World Cup. In Russia 2018, the Uruguayan squad will include many star players. The recent renaissance of Uruguayan football pales in comparison to the economic rebound experienced since the 2002 crisis, with the economy expanding for 15 consecutive years. After a decade long period of sustained economic growth based on sound macro policies and successful institutional reforms, Uruguay earned the investment grade ‘triple crown’ from the three largest credit rating agencies in 2012. If the football rivalry with Argentina and Brazil were extended to the recent growth performance, Uruguay would win against both.
Croatia has never been able to equal the success of their first World Cup campaign, when the ‘Golden Generation’ took the team to third place in the 1998 World Cup. After coming third in the Group stage in Brazil, and failing to qualify for the 2010 tournament, in Russia the team will be hoping to capitalise on the potential implied by their players. The global financial crisis (GFC) precipitated a severe recession in Croatia, and subsequent private sector deleveraging, as well as significant fiscal consolidation, prolonged the process of recovery. While the football team has proved inconsistent over the past three years, the economy appears to have taken a decisive positive step and recorded positive growth for three successive years.