From ‘huge blow’ to ‘relatively limited’: Analysts weigh in on the potential impact of delaying Tokyo Olympics

A pedestrian wearing a face mask walks past a banner promoting the upcoming Tokyo 2020 Olympic and Paralympic Games outside the Tokyo Metropolitan Government building on February 26, 2020 in Tokyo, Japan.

Tomohiro Ohsumi | Getty Images

Questions over whether to postpone or cancel this year’s Summer Olympics in Tokyo have swirled in recent weeks as authorities around the world scramble to contain the fast-spreading coronavirus outbreak.

While some analysts say that it could be “a huge blow” to the Japan economy, others say the impact may be “modest.”

Japan has been under pressure to either cancel or delay the games, set to take place in Tokyo from Jul. 24. Both Japan and the International Olympic Committee have insisted that the Games will go on, and that cancellation of the high-profile sports event was not in the cards.

Fitch Solutions said in a report that the postponement or cancellation of the Tokyo Olympics Games could deal “a huge blow to Japan’s economy and prestige.”

“Although the Japanese government would not necessarily be viewed negatively for postponing or cancelling the games, it would rob Prime Minister (Shinzo) Abe of a potential major national celebration in 2020 as he prepares to step down in September 2021,” the analysts said in a note dated Mar. 17. “Conversely, maintaining the Olympic Games could upset a significant portion of the population who may fear a second wave of infection as Japan would welcome athletes, staff and tourists from around the world.”

On the other hand, Oxford Economics’ Stefan Angrick told CNBC in an email that “the additional economic impact of a decision not to hold the Games in 2020 is relatively limited.”

“We think about it this way: The games raise economic activity by triggering construction in the years leading up to the event, and by boosting inbound tourism and associated consumption at the time the Games take place,” Angrick said. “As construction is complete, that impact is already reflected in past GDP data and won’t change.”

The question then is how a postponement would impact inbound tourism and consumption, he said.

“In a hypothetical scenario without the coronavirus pandemic, such a step would have a significant impact,” Angrick said. “But considering the situation we’re in, with tourism coming to a virtual standstill and consumption set to decline, the additional impact of postponing the Olympics is fairly modest.”

All that comes as Japan has already seen a slump in consumer spending following a hike in the sales tax last October.

“I think if the games do have to be postponed, that calls into a bigger question about what’s happening in the rest of the world and that probably is a reflection that the COVID-19 situation is not improving,” Kathy Matsui, chief Japan strategist at Goldman Sachs, told CNBC’s Street Signs” on Monday. “That, I think, has bigger impact on Japanese export demand and obviously domestic consumption and business activity as well.”

As the future of the Tokyo Olympics hangs in the balance, Japanese Prime Minister Shinzo Abe reportedly told Parliament on Monday that cancellation is “not an option.” Still, he reportedly said the possibility of the games being postponed remains.

“I think the chances are it wouldn’t be … a bad idea to push it out into October, which is when the Tokyo 1964 Olympics was done,” Nicholas Smith, Japan strategist at CLSA, told CNBC’s “Squawk Box” on Wednesday.

On Sunday, the Canadian Olympic Committee (COC) and Canadian Paralympic Committee (CPC) said they will not be sending teams to the Olympic and Paralympic Games this year, calling for the Games to be postponed by a year.

— CNBC’s Alex Sherman and Jabari Young contributed to this report.

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