China's Olympics will hit the economy hard in the short term and have few long-term economic benefits, a new report by Goldman Sachs says.

A construction stoppage and closed factories and mines aimed at temporarily reducing pollution will be a drag on economic output in the short term and may lead to a general softening after the Games, according to Goldman.

“These measures will likely lead to a visible slowdown in real economic activities, both production and consumption, in August and September,” the report says.

Although activity will pick up in October, the US investment bank adds: “We expect a gradually softening economic path in the second half of 2008.”

Beijing imposed restrictions on businesses in and around the capital in an attempt to reduce the capital's infamous smog for the Games.

The city has spent about $70 billion (£36.5 billion) preparing for the Games to improve air quality, build subways, sports stadiums and an airport terminal.

About 500,000 foreign visitors are attending the Olympics, with almost all seven million tickets to the events sold. The Olympics run until 24 August with the Paralympics following from 6-17 September.

Goldman said “the long-term economic impacts of the Olympic Games are likely to be minimal”.