Will hosting the Rugby World Cup highlight New Zealand as a tourist destination in the long term? The Reserve Bank says international experience suggests any such boost will be limited, especially when the exchange rate is high, which it currently is. And an early All Blacks bow-out from the tournament could negatively impact domestic spending.
In the first of a series of research papers, the RBNZ today released an analysis of the potential economic effects of this year’s Rugby World Cup. It comes as the Reserve Bank Museum launches a special ‘Ruggernomics’ exhibition in spring, showcasing currency from rugby playing countries around the world.
Reserve Bank head of economics Dr John McDermott said the tournament would be a "significant event for the New Zealand economy", bringing an estimated 95,000 visitors spending $700 million in total.
Based on the Australian Rugby World Cup in 2003, the bank said tourists from the UK, France and South Africa were likely to make up the vast majority of visitors. British and European visitors spent the most per trip on average and stayed for longer periods of time, while American visitors spent the most per person per day.
"The 2003 tournament provides a valuable benchmark, but economic developments since then will have an impact on the number of visitors in 2011 and the amount these tourists will spend in New Zealand," it said.
"New Zealand's situation now is rather different. The New Zealand dollar is about 20 percent above its long-term average, and is particularly high relative to the South African rand, the British pound and the US dollar, having appreciated significantly against these currencies since 2003.
"All else equal, an elevated currency makes New Zealand more expensive as a destination, potentially discouraging some visitors. In addition, visitors may be working to a fixed budget in their home currency while travelling. An appreciation of the New Zealand dollar erodes the value of that fixed budget and will lower the total amount of spending in New Zealand dollar terms."
On the other hand, the New Zealand dollar is relatively low against the high Australian dollar at the moment, a factor that may encourage a higher proportion of Australian visitors as well as a higher average spend. However, New Zealand will still have to compete as a destination for Australian tourists during the Rugby World Cup.
Gross spending would not directly boost GDP and would be countered by an increase in imports of goods and services, the bank said, but would be equivalent to around 1.4 percent of quarterly GDP.
"Domestic spending on the tournament is also expected to be significant, although it is less clear how much, if any, of an overall boost to total domestic spending there will be."
The RBNZ said if incomes rose as a direct result of increased domestic and international spending in New Zealand, this would tend to increase domestic spending even further into next year.
"On the other hand, an unexpected early exit of New Zealand from the tournament could have the opposite effect."
Its study concluded Rugby World Cup tourism could crowd out other visitors, with potential travellers perceiving the country at capacity and either postponing trips or choosing alternative destinations. Some business activity might also be offset, due to the difficulty in organising accommodation, travel and events around the time of the cup.
"However, Rugby World Cup visitors are expected to stay longer, on average, than typical tourists. As a result, a typical Rugby World Cup arrival will put more pressure on tourism resources than an average tourist.
"In addition, regional capacity pressures may be an issue, particularly if the tournament sees a rise in tourist numbers to regions that do not generally experience significant seasonal peaks in tourism."