Tourism in Southern Europe, Accounting for 13%-21% of GDP, is on its Knees. When Will it Get Back Up Again?

The economies are still incredibly fragile, even eight years after the last crisis

The tourism industry is in the “eye of the hurricane”, says Manuel Butler, executive director of the World Tourism Organization. “It was the first sector to be afflicted by the virus crisis and, unlike other crises, is likely to be the last to recover from it.”

Tourist spending across Europe already slumped 68% year-on-year in March, when the lockdowns began to spread across the continent, according to a recent UBS analysts’ note based on data from Planet, the VAT refund provider. “Chinese spend in Europe was down 84.6% y/y, with all other nationalities also declining in March,” the report said.

Italy, the first European country to be hit by the virus and the first to enter full lockdown, on March 10, saw the biggest drop in tourist spending, down 96% year-over-year. Hotel occupancy in Italy also slumped to 4%, its lowest level ever.

Overnight stays in hotels in Spain, which entered lockdown around ten days after Italy, plunged 61% year over year in March to 8.3 million, also the lowest number on record, according to Spain’s National Statistics Institute. In April, the number is likely to be much closer to zero since almost all of Spain’s hotels and other temporary lodgings have been closed since March 26.

Spain’s government plans to gradually relax the country’s lockdown conditions, among the harshest in Europe, on May 10, but there will be little relief for the country’s tourism industry. Spain’s Minister of Work, Yolanda Diaz, said in a statement this week that the sector would not be returning to any semblance of normality until at least the end of the year. While her words infuriated some in the sector, most tourism businesses are grudgingly accepting that the summer season is as good as lost.

Even as lockdown conditions are gradually lifted in places like Italy and Spain, many social-distancing restrictions will remain in place, including rules affecting travel. And consumers, still fearful of contracting the virus while also reeling from the deep economic recessions that are hitting just about every national economy on the planet, are unlikely to travel so far or with such frequency for some time.

“Fear of traveling will probably last longer than the pandemic itself. It’s difficult to expect an immediate recovery of tourism once the lockdown measures are lifted,” said Steven Trypsteen, an economist at Dutch bank ING.

The result is that European cities, towns, islands and beach resorts that were gearing up for yet another summer of unfettered tourism, with all the pros (oodles of money and jobs, albeit of the casual, low paid variety) and cons (sky-high prices and rents, overcrowding, noise, environmental degradation and pollution, overstretched public services and infrastructure) it brings, are now facing their most challenging year since the mass tourism industry came into being, in the post-World War 2 period.

The impact is likely to be particularly brutal for Southern European economies, which all share the following three features:

They all depend enormously on tourism. In Spain the sector accounts for 15% of GDP; in Italy it’s 13%; in Portugal it’s 18%, and in Greece it’s 21%. Travel and tourism also provide as much as 26% of jobs in Greece. While huge, these are still macro-level numbers. When you drill down to a more local level, there are many regions, such as Spain’s Canary Islands, for whom tourism represents one-third or more of the local economy. Within those regions in Southern Europe, there are thousands of towns and villages that depend almost entirely on tourism for jobs and income.

They are still incredibly fragile, even eight years after the last crisis. The Italian and Greek economies are still smaller than they were before the 2008 global financial crisis. Spain’s economy has rebounded more robustly but even after six and a half years of growth, its official unemployment rate was still barely below 15%. Now, it’s about to explode well above 20%, for the fourth time in 30 years.

Continue reading the article on Wolf Street

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