Financial Chronicle - - DEEP DIVE -


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.

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