How important is international tourism to the global economy?

Simon Stevenson
Simon Stevenson
Schroders Deputy Head of Multi-Asset
We look at which countries' economies would be worst hit by a collapse in international tourism.

Governments globally have been introducing new restrictions on tourism, with the UK government the latest to follow suit by bringing in new quarantine rules requiring most people arriving in the UK to self-isolate for two weeks.

Although potential ‘travel corridors’ or ‘air bridges’ are still being considered for countries perceived as having lower risk of Covid-19, this was a further blow to the floundering tourism industry.

Airlines and travel companies struggling for their very survival have roundly criticised the new rules as we move into the traditional summer holiday season.

What could a collapse in tourism mean to the global economy?

Tourism contributed 10.4% to global GDP in 2018; however, with many countries worldwide currently operating travel restrictions, the sector is now facing serious challenges.

Scenarios produced by the United Nations World Tourism Organisation (UNWTO) point to a decline in international tourist journeys of between 58% and 78% for 2020. Such an outcome could potentially see 100-120 million direct tourism jobs at risk in what is one of the most labour-intensive sectors of the global economy.

What could be the impact on various different economies?

Here we look at international tourism, which is more vulnerable than domestic tourism to the challenges of Covid-19.

The UNWTO analyses data on ‘the share of international guests at all commercial establishments’ to estimate the contribution of international tourism to overall tourism in a specific country. This metric ranges from 98% in Liechtenstein and Monaco, for example, to just 11% in Australia.

By combining this measure with tourism’s total contribution to GDP, we can estimate a country’s exposure to international tourism. Given that a quick analysis of tourism as both a share of GDP and of total employment reveals a very strong relationship, this can be seen as a good indicator for the impact on employment too.

The international tourism column in our table below aims to only capture that portion of GDP generated by international tourism and, in doing so, highlight those economies most vulnerable to a downturn.

However, this does not factor in the benefit that may arise from the ‘on-shoring’ of expenditures that are no longer spent abroad. Using international receipts minus expenditures, we can arrive at a net flow from international tourism.

By stacking this up against total GDP, the net impact of international tourism on an economy can be assessed. Those regions currently enjoying positive flows (such as Spain) would essentially suffer in a world bereft of international tourism.

What other factors might influence an economy’s vulnerability?

The final two columns of our table concentrate on the characteristics of the average tourist. The ‘average receipts’ measure shows how much the average visitor to that economy spends (in thousands of US dollars) while on holiday. In other words, how effective a country is in turning volumes into value.

With greater emphasis on social distancing and personal space, this focus on quality over quantity could play a crucial role. However, this works both ways – in the short run, where visitor volumes have plunged globally, these more exposed regions will be suffering the sharpest monetary losses.

The ‘average expenditure’ measure tracks the equivalent of receipts for the spending of an average citizen when they travel abroad.

With travel ‘bubbles’ looking set to become a more common feature of the international travel scene, those economies establishing such ‘corridors’ with countries such as Australia and Iceland (which were the top two countries by the metric of their expenditure abroad) may well reap the rewards. This data includes payments made to national airlines, perhaps explaining Australia’s high rank in both metrics.

There are a range of other factors which come into play, one of which is the seasonality of tourism in certain economies. European economies such as Spain and Italy are particularly dependent on summer visitors and, as such, the timing of this crisis could hardly have been worse.

An additional consideration could be the risk that those regions most scarred by Covid-19 have difficulties clearing this stigma and suffer a longer wait for tourist levels to recover as a result.

A glimmer of hope?

Circling back to where we started, those UK businesses fearing the new travel rules might take some comfort from the results of Table 1. With the thought of a 14-day quarantine upon return likely to dissuade Brits from travelling abroad, the hope will be that this forsaken expenditure is redirected to the local economy.

With a net outflow from tourism in 2018 (worth 0.71% of GDP) the scope is certainly there for domestic activity to offset lost international arrivals.

This is an article originally written by James Reilly, Economist, at Schroders.

Important Information:
This material has been issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders) for information purposes only. It is intended solely for professional investors and financial advisers and is not suitable for distribution to retail clients. The views and opinions contained herein are those of the authors as at the date of publication and are subject to change due to market and other conditions. Such views and opinions may not necessarily represent those expressed or reflected in other Schroders communications, strategies or funds. The information contained is general information only and does not take into account your objectives, financial situation or needs. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this material. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this material or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this material or any other person. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any references to securities, sectors, regions and/or countries are for illustrative purposes only. You should note that past performance is not a reliable indicator of future performance. Schroders may record and monitor telephone calls for security, training and compliance purposes.

Learn more
Established in 1961, Schroders in Australia is a wholly owned subsidiary of UK-listed Schroders plc. Based in Sydney, the business manages assets for institutional and wholesale clients across Australian equities, fixed income and multi-asset and global equities.

Schroders believes in the potential to gain a competitive advantage from in-house global research; that rigorous research will translate into superior investment performance. We believe that internal analysis of investment securities and markets is paramount when identifying attractive investment opportunities. Proprietary research provides a key foundation of our investment process and our world-wide network of analysts is one of the most comprehensive research resources dedicated to funds management.

Areas of expertise:
Australia equities
Fixed income
Global equities

Why Schroders?

With a global network of researchers, we focus on serving our clients and targeting one result - superior investment performance.

Inherent in our approach to investment management is:
A structured, disciplined and repeatable investment process
A clearly defined investment style
A team approach to investment management

A global asset manager

We have responsibility for A$803.1 billion of assets* on behalf of institutional and retail investors, from around the world. Their assets are invested across equities, fixed income and alternatives.

We employ over 4700 people worldwide who operate from 41 offices in 30 different countries across Europe, the Americas, Asia and the Middle East.

We are close to the markets in which we invest and our clients.

Schroders has developed under stable ownership for over 200 years. Long-term thinking governs our approach to investing, building client relationships and growing our business.

*Source: All data as at 30 June 2018