World — Slow tourism recovery will weigh on dependent economies
World Risk Developments August 2020
The COVID-19 pandemic has decimated international tourism. Asia-Pacific airlines’ June traffic fell 97% compared to a year ago, little improved from the 98% decline in May. This is unsurprising given travel restrictions remain in place in over 150 countries. But COVID-19 is likely to impose more persistent damage on tourism relative to other parts of the economy. According to the International Air Transport Association (IATA), global passenger traffic won’t return to pre-COVID-19 levels until 2024.
The slow recovery reflects three factors. First, ongoing restrictions to contain the virus in the US and developing economies, which together account for 40% of global air travel markets, and localised restrictions and declining confidence in other significant markets in response to flare-ups. Second, reduced corporate travel amid tight corporate profits, the need to manage corporate liabilities and risk exposures until there is a vaccine, and the demonstrated effectiveness of video conferencing. Third, weak consumer confidence and changes in consumer behaviour, including because social distancing requirements will drive up ticket prices. In a recent IATA survey, less than 20% of respondents indicated that they would travel after borders reopen, with mandatory quarantines a persistent deterrent.
Weaker tourism revenues will have a significant negative impact on emerging markets that are important tourism destinations or that have large domestic airlines. Tourism accounts for a substantial share of employment and economic activity in many Pacific Island countries and emerging markets in our region (Chart). In Thailand, for example, the Institute of International Finance estimate that a two-thirds drop in tourism could subtract 7-9 percentage points from growth. Domestic travel will be an important cushion in countries that have a) large domestic markets and b) largely contained the COVID-19 outbreak, such as China. But the tourism sector is heavily reliant on SMEs, which may find it more challenging than larger enterprises to survive the downturn.