The collapse of tourism in 2020 due to the coronavirus (COVID-19) pandemic was unprecedented. Several countries in New Europe are heavily dependent on tourism to earn foreign exchange, with Turkey and Croatia the most noticeable, and saw their industries battered by the travel bans starting at the beginning of the season last April.
Tourism began to recover towards the end of last summer as lockdown restrictions started to be lifted, but then suffered a second blow as the second wave of the pandemic got under way.
Now the winter is over and the pandemic seems to be in retreat as more and more countries roll out mass vaccination programmes, there is hope that tourism will start to recover as the warmer weather arrives, but the virus’ persistence and the lack of adequate supplies of vaccine in many of the affected countries means the recovery will be slow, reports the Institute of International Finance (IIF) in a recent paper.
“While the situation remains difficult for the tourism industry at this point, there appears to be some hope of recovery due to vaccination efforts gaining momentum and fewer (travel) restrictions being discussed for vaccinated individuals. However, we find that even a relatively fast rebound of tourism would leave many countries in a precarious position in 2021, both with respect to economic growth as well as external vulnerabilities,” IIF economists Benjamin Hilgenstock and Elina Ribakova said in their note.
2020 was truly an annus horribilis for the hospitality industry that stood directly in the path of the pandemic’s juggernaut. Of the 38 countries for which IIF are able to collect visitor numbers, three quarters experienced declines of more than 95% compared to the second quarter of 2019, with a median decrease of 98%.
In some countries, largely those in EM Asia, borders effectively remained closed beyond 2020 Q2 and visitor numbers stayed at or near zero for the rest of the year, reports IIF.
“At the same time, subsiding infections in Europe allowed for fewer restrictions and led to a temporary uptick in visitor numbers over the summer,” IIF said. “However, the second wave of the pandemic and reintroduction of strict public health measures suppressed tourism again towards the end of the year.”
Destinations in Latin America benefited from fewer travel restrictions and a somewhat more laissez-faire attitude in the US. These dynamics are reflected in the full-year numbers, with Asian EMs seeing the largest declines.
Despite an end to the pandemic being in sight, this year is likely to remain very difficult for the industry. The first big holiday has already passed without bring much relief; over half a million Russians chose to holiday in Crimea over the long May holidays – this year extended to 10 full days by Russian President Vladimir Putin – which was more than even the peninsula’s Soviet-era heydays. Russians usually take the opportunity of the May holidays to visit popular tourist destinations around the world, but this year decided to remain inside the country due the ongoing travel restrictions.
“It is important to recognise that even a relatively fast recovery of international travel in the coming months would leave many tourism destinations in a precarious position,” IIF says before offering three scenarios for the possible recovery this year.
The first scenario assumes the pandemic continues to recede and tourism levels regain their pre-pandemic levels by the start of 2022. The second scenario is for a slower recovery and pre-pandemic levels are only reached at the end of 2022. And in the third the pre-pandemic levels are achieved only at the start of 2023.
“Even the most optimistic scenario would leave visitor numbers substantially below their 2019 levels this year – around 60% in Thailand and Vietnam, 50% in Croatia and South Africa, and 40% in the Dominican Republic, Mexico and Turkey,” IIF estimates.
“However, a full recovery by the start of next year would be surprisingly fast given the slow vaccination campaigns in some countries. In a more realistic scenario, numbers could stay 70-80% below pre-pandemic levels this year in some places,” IIF calculates.
First in, last out; the tourism sector will likely take the longest of all sectors hit by the pandemic to recover, says IIF, and that will have big knock-on effects for the economies that are dependent on tourism for income.
Comparing the seasonally adjusted real GDP in Thailand with the overall EM universe (excluding China), IIF forecast that Thailand will reach the fourth quarter of 2019 GDP levels roughly two quarters later only in the first quarter of 2022 – two quarters later than emerging markets as a whole. Indeed, drilling into Thailand’s GDP numbers and it seems that most of the sectors not related to tourism have already fully recovered the ground lost since 2019.
Croatia’s economy is expected to post a strong bounce-back growth of 5% in 2021, after contracting by 8% in 2020, and should exceed its pre-crisis level in 2022, the European Commission said in its spring 2021 economic forecast released on May 12. In 2022, the GDP should expand by 6.1%.
“Fuelled by pent-up demand and the accumulation of involuntary savings, household consumption is set to provide a boost to growth as constraints on the consumption of services ease. This trend should be supported by moderately positive labour market developments,” the EC noted in the report.
However, the exports of services, mainly of tourism, are expected to remain below pre-crisis levels throughout 2022 and not fully recover until 2023. However, just how fast they do recover over 2021 and 2022 will be an important growth driver.
And the country is still battling with the virus. In April the government decided to extend the restrictions imposed to contain the spread of coronavirus without specifying for what period, Deputy Prime Minister Davor Bozinovic said on April 18. Despite restrictions, Croatia has faced a rising number of new cases in the past several weeks, with the average daily number going significantly above 2,000.
Turkey has been suffering even more. There as a mild economic expansion in the first quarter of this year but the economy is expected to slip back into recession in the second quarter, as it has been fighting multiple crises in addition to the corona pandemic.
In addition, the government appears to have lost control of the epidemic in the country and went back into full lockdown at the end of May to try to contain the spread of the virus.
Officials are worried that if they don’t act now, the country’s international tourism industry could for the second year running suffer devastating losses. Tourism accounts for around 11% of the Turkish economy. It earned Turkey a record $34bn in 2019, but last year the impact of the pandemic caused that figure to plummet by around $22bn.
"At a time when Europe is entering a phase of re-opening, we need to rapidly cut our [daily] case numbers to below 5,000 not to be left behind. Otherwise we will inevitably face heavy costs in every area, from tourism to trade and education," Turkish President Recep Tayyip Erdogan said when announcing the new measures.
And Albania’s nascent ambitions to build up a tourism industry have taken a blow right at the start of the process. As bne IntelliNews has reported, what slender resources Albania already has have been crushed by the halt in tourist flow. With what may be some of the last unspoilt beaches in Europe, the government was planning to invest $100mn into its airport to better serve inbound holidaymakers at the start of this year.
“This investment plan by the new concessionaire is an ambitious plan, which aims to significantly improve the operation of Mother Teresa Airport and turn Tirana International Airport into a positive example in the region, with an extraordinary impact on the growth of 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 at the end of January.
The supporting hospitality and transport infrastructure is also being developed and has made significant progress, but the destination is still not well known and the coronacrisis has set plans back.
Current account recovery
Beyond the impact on GDP and labour markets, the slow recovery of tourism also has important consequences for countries’ external balances.
In 2020, many EMs saw an improvement in their current accounts despite the decline in services credits, largely due to substantially lower imports of goods and services. Tourists that used to spend their dollars abroad were staying at home, which is a net win for the current account. Russians spend between $2bn and $3bn a year in Turkey while on holiday there.
The halt in outbound tourism acts as an automatic cushion for most countries’ current accounts and reduces external financing needs in a time of risk-averse sentiment in global financial markets. However, the stay-at-home boost is not enough to compensate for the fall in revenues for the favourite holiday destinations.
Now that tourism is beginning to recover, this will hurt current account positions as the “import of services” recovers. (Going overseas is a drain on a country’s stock of foreign exchange and so counts as an import.)
“Trade balances will revert to pre-pandemic levels in 2021 to a certain extent despite concurrently improving exports. With tourism revenues still significantly suppressed, external pressure is therefore likely to rise,” says IIF.