Tourism-dependent economies face a second summer recession
As the spread of the coronavirus discourages tourists, emerging economies that rely on tourism have already been struggling with financial constraints and debt inflation before the pandemic, and they are calculating the cost of their second consecutive summer downturn.
According to data released by the United Nations World Tourism Organization in July, in the first five months of this year, the number of global international tourists dropped by an average of 85% from the 540 million before the 2019 pandemic. This is even worse than the same period last year, when the number of arrivals dropped by an average of 65% year-on-year.
The Asia-Pacific region has been hit particularly hard, with arrivals falling by 95% compared to 2019 levels-mainly due to the continued absence of Chinese tourists. In contrast, the return of American tourists has lessened the blow to the Caribbean.
As tourism revenues in most parts of the emerging world have fallen, government debt has also increased because they have difficulty meeting the costs of the pandemic. According to data from the Institute of International Finance, the average government debt of large emerging economies rose from 52.2% of GDP to 60.5% in 2020, the largest increase on record.
The damage is not evenly distributed. Some economies entered the pandemic in a better state than others and were able to weather the storm better.
Geeta Gopinat, Chief Economist of the International Monetary Fund warn Earlier this year, economic performance “had a dangerous divergence between and within countries, because economies with slower vaccine launches, limited policy support, and greater reliance on tourism have performed poorly.”
David Rogovich, a senior analyst at Moody’s Investor Services in New York, said that the most risky countries are “smaller, less diversified economies that have entered the big market despite weak fiscal conditions. Popular. Places like the Bahamas, Maldives, and Fiji are very dependent on tourism and have suffered major shocks.”
Luiz Eduardo Peixoto, an emerging market economist at BNP Paribas in London, said the situation so far this year is worse than predicted last year.
“Last year, some people assumed that we would see a rebound in 2021,” he said. “But down [in numbers] Close to the most pessimistic scenario last year [forecast] By the United Nations World Tourism Organization (UNWTO) because we are in [northern hemisphere] Winter-on the contrary. This year, the situation has not recovered as expected. “
He cited the slow launch of vaccines in many developing countries and the spread of new variants of the virus, which hindered countries’ plans to relax border restrictions.
For example, since the beginning of the pandemic, China has been strictly restricting inbound and outbound travel, thus depriving Southeast Asian destinations of the largest source of tourists.
Moody’s data shows that Thailand’s tourism industry created 20% of GDP and employment in 2019. Its attempt to open the tourism bubble for vaccinated tourists this summer had a bumpy start, and despite entry controls, tourists tested positive for the virus.
However, Moody’s pointed out that the collapse of the tourism industry has not plunged its public finances into crisis. This is because the strength of other sectors of the economy, such as manufacturing and other parts of the service industry, offset the impact on tourism. Other diversified Asian economies such as the Philippines and Cambodia are in a similar situation.
But for small island economies, diversification is not an option, especially when declining tourism income exacerbates the original problems.
The Bahamas is one such place, whose credit rating has been downgraded many times over the past decade due to the increasing debt burden. When the pandemic hit last June, Moody’s once again downgraded its rating by two levels and maintained a negative outlook for further downgrades.
Moody’s warned that Fiji and Maldives face similar challenges because of increasing debt and difficulty in refinancing between a limited range of international banks.
One highlight of the local tourism industry is that countries with a large middle class are benefiting from holidaymakers who choose to stay at home this year.
Peixoto of BNP Paribas pointed out that due to the sharp increase in domestic travel, the capacity of scheduled flights between Russia and China in the third quarter of this year was higher than in the same period in 2019.
Countries such as Brazil, the Philippines, Argentina and Mexico have also benefited.
“We saw this in a few quarters last year. Brazilians who usually go abroad stay in the country and generate more income in the country,” he said. “In Russia, it is increasing inflationary pressures.”
He added that this may not be able to replace the foreign exchange earnings of these countries, but it can indeed maintain the business of hotels and other businesses and the employment of workers.
Data from the United Nations World Tourism Organization showed signs of recovery in May, when the number of international arrivals was 82% lower than the pre-pandemic level, and in April it fell by 86%.
However, most of the recovery has occurred in advanced economies, and there is little good news for developing countries that rely on tourism. The reopening of the industry in the most affected areas will be shelved indefinitely.
“For them, it is difficult to have a reason to significantly reduce travel restrictions this year,” Peixoto said. Therefore, “we don’t think there will be a significant recovery in foreign tourism in emerging markets this year.”