Australia—Services exports rising gradually following border reopening
World Risk Developments
Services accounted for around 20% of total Australian exports prior to the pandemic. Services exports unrelated to travel recovered to pre-COVID levels earlier this year. However, while tourism and education exports have increased following the reopening of Australia’s international border in February 2022, they continue to underperform (Chart). Overseas visitor arrivals tripled over the first half of 2022 to around 45% of pre-pandemic levels in June. While short-term visits to friends and family in Australia have recovered to 67% of pre-pandemic levels, holidaymakers from overseas are a quarter of their former number. Indeed, departures from Australia have recovered more quickly than arrivals. COVID-19 outbreaks and travel restrictions in China have contributed to the recovery in arrivals being slower than anticipated; just 2% of short-term visitors were from China in the three months to June 2022, compared to 13% during the same period in 2019. Since the onset of the pandemic, from March 2020 to June 2022, an estimated $87 billion in Australian travel exports (roughly 4.3% of GDP) have been lost.
Looking ahead, the re-opening of Asia Pacific markets and shift in consumption patterns away from goods and back toward services as the COVID-19 pandemic eases will see travel exports continue to accelerate. Indeed, data from the Department of Home Affairs indicates student visa applications are well above pre-pandemic levels. That said, Chinese authorities remain committed to eliminating COVID and global economic conditions are worsening. Higher inflation and interest rates and subdued consumer sentiment may eventually begin to dampen the pent-up demand for air travel. As such, the number of international students in Australia are not expected to reach pre-pandemic levels for several years. The overall recovery in services exports is expected to reach pre-pandemic levels only in late 2023.