bne IntelliNews – The long road to tourism recovery

The collapse of tourism in 2020 due to the coronavirus pandemic (COVID-19) was unprecedented. Several countries in the new Europe are heavily dependent on tourism for foreign exchange, Turkey and Croatia being the most notable, and have seen their industries battered by travel bans from the start of the season last April.

Tourism began to recover towards the end of last summer as lockdown restrictions began to be lifted, but then suffered a second blow when the second wave of the pandemic began.

Now that winter is over and the pandemic appears to be receding as more countries roll out mass vaccination programs, there is hope that tourism will start to recover as more time passes. hot, but the persistence of the virus and the lack of adequate vaccine supply in many affected countries means that the recovery will be slow, reports the Institute of International Finance (IIF) in a recent paper.

“Although the situation remains difficult for the tourism industry at this point, there appears to be some hope of recovery due to the ramping up of vaccination efforts and the decrease in the (travel) restrictions discussed for them. people vaccinated. However, we find that even a relatively rapid rebound in tourism would leave many countries in a precarious position in 2021, both in terms of economic growth and external vulnerabilities, ”said IIR economists Benjamin Hilgenstock and Elina Ribakova in their note.

2020 has truly been an annus horribilis for the hospitality industry which stood directly in the heavyweight lane of the pandemic. Of the 38 countries for which the IIR is able to collect the number of visitors, three-quarters have seen a drop of more than 95% compared to the second quarter of 2019, with a median drop of 98%.

In some countries, largely those in emerging Asia, borders remained closed beyond Q2 2020 and visitor numbers remained at or near zero for the rest of the year, reports the IIF.

“At the same time, the decrease in infections in Europe has allowed fewer restrictions and led to a temporary increase in the number of visitors during the summer,” the IIR said. “However, the second wave of the pandemic and the reintroduction of strict public health measures again suppressed tourism towards the end of the year.”

Destinations in Latin America have benefited from fewer travel restrictions and a little more laissez-faire attitude in the United States. This dynamic is reflected in the figures for the entire year, with emerging Asian countries recording the most significant declines.

While the end of the pandemic is in sight, this year is likely to remain a very difficult one for the industry. The first big party has already passed without bringing much relief; more than half a million Russians chose to vacation in Crimea during the long May holidays – this year extended to 10 full days by Russian President Vladimir Putin – which was even more than the heyday of the Soviet era of the peninsula. Russians typically use the May holidays to visit popular tourist destinations around the world, but this year they have decided to stay inside the country due to ongoing travel restrictions.

“It is important to recognize that even a relatively rapid recovery in international travel in the coming months would leave many tourist destinations in a precarious position,” the IIR says before proposing three possible recovery scenarios this year.

GDP recovery

The first scenario assumes that the pandemic continues to decline and that tourism levels return to pre-pandemic levels by early 2022. The second scenario is for a slower recovery and pre-pandemic levels are not reached. only at the end of 2022. And in the third scenario, the prepandemic levels are not reached until the beginning of 2023.

“Even the most optimistic scenario would leave the number of visitors well below their level of 2019 this year – around 60% in Thailand and Vietnam, 50% in Croatia and South Africa, and 40% in the Dominican Republic, Mexico and Turkey ”, estimates IIR.

“However, a full recovery by early next year would be surprisingly fast given the slow pace of vaccination campaigns in some countries. In a more realistic scenario, the numbers could remain 70 to 80% below pre-pandemic levels this year in some places, ”calculates the IIR.

First in, last out; The tourism sector will likely take the longest of any sectors affected by the pandemic to recover, says IIR, and this will have a significant impact on economies that depend on tourism for income generation.

Comparing Thailand’s seasonally adjusted real GDP with the overall EM universe (excluding China), the IIR predicts that Thailand will reach fourth quarter 2019 GDP levels around two quarters later only in the first quarter of 2022 – two quarters later than emerging markets. a set. Indeed, probing Thailand’s GDP figures, it appears that most non-tourism sectors have already fully recovered the ground lost since 2019.

Croatia’s economy is expected to post strong rebound growth of 5% in 2021, after contracting 8% in 2020, and is expected to exceed its pre-crisis level in 2022, the European Commission said in its economic forecast. of spring 2021 published in May. 12. In 2022, GDP is expected to grow by 6.1%.

“Fueled by pent-up demand and the accumulation of involuntary savings, household consumption is expected to boost growth as constraints on the consumption of services ease. This trend should be supported by moderately positive labor market developments, ”the EC noted in the report.

However, exports of services, mainly tourism, are expected to remain below pre-crisis levels throughout 2022 and not fully recover until 2023. However, how quickly they recover in 2021 and 2022 will be an important engine of growth.

And the country is still struggling with the virus. In April, the government decided to extend restrictions imposed to contain the spread of the coronavirus without specifying for what period, Deputy Prime Minister Davor Bozinovic said on April 18. Despite the restrictions, Croatia has faced an increasing number of new cases in recent weeks, with an average daily count well over 2,000.

Turkey is suffering even more. There is a slight economic expansion in the first quarter of this year, but the economy is expected to fall back into recession in the second quarterbecause he has fought several crises in addition to the corona pandemic.

In addition, the government appears to have lost control of the epidemic in the country and returned in full lockdown at the end of May to try to contain the spread of the virus.

Officials fear that if they do not act now, the country’s international tourism industry could suffer devastating losses for the second year in a row. Tourism represents around 11% of the Turkish economy. This earned Turkey a record $ 34 billion in 2019, but last year the impact of the pandemic caused that figure to drop to around $ 22 billion.

“As Europe enters a phase of reopening, we must quickly reduce our [daily] case numbers below 5,000 should not be overlooked. Otherwise, we will inevitably face high costs in everything from tourism to trade and education, ”Turkish President Recep Tayyip Erdogan said when announcing the new measures.

And Albania nascent ambitions to build a tourism industry took a beating early in the process. As bne IntelliNews reported, what thin resources Albania already has crushed by the stop of the tourist flow. With what may be some of the last unspoiled beaches in Europe, the government planned to invest $ 100 million in its airport to better serve incoming holidaymakers at the start of the year.

“This investment plan of the new concessionaire is an ambitious plan, which aims to significantly improve the operation of the Mother Teresa Airport and to make Tirana International Airport a positive example in the region, with an extraordinary impact on the region. growing tourism in Albania and improving the ease of doing business, ”Tirana International Airport (TIA) announced in January.

The government also hopes to create the country’s first ski resort at Korça, Prime Minister Edi Rama said during a visit to the city in late January.

Reception and support transport infrastructure is also under development and has made significant progress, but the destination is still not well known and coronacrisis has delayed plans.

Current account recovery

Beyond the impact on GDP and labor markets, the slow recovery in tourism also has significant consequences on countries’ external balances.

In 2020, many emerging countries saw their current accounts improve despite the decline in service credits, largely due to a substantial drop in imports of goods and services. Tourists who spent their dollars abroad stayed at home, which is a clear win for the current account. Russians spend between $ 2 billion and $ 3 billion a year in Turkey while on vacation.

The cessation of outbound tourism acts as an automatic cushion for the current accounts of most countries and reduces the need for external financing at a time when the feeling of risk aversion in global financial markets is occurring. However, the boost to stay-at-home is not enough to offset the drop in income at preferred vacation destinations.

Now that tourism is starting to recover, this will hurt current account positions as “import of services” recovers. (Going abroad is a drain on a country’s currency stock and therefore counts as an import.)

“Trade balances will return to pre-pandemic levels to some extent in 2021, despite the simultaneous improvement in exports. As tourism revenues are still considerably reduced, external pressure is therefore likely to increase, ”says the IIR.