The tourism sector in emerging Asian and Sub-Saharan African economies remains the most vulnerable globally, as many countries continue to experience a near-wipeout of revenues, according to a new report from the Institute of International Finance.
Tourism revenue in some countries where travel restrictions are still in place "continue to experience year-over-year declines close to 100 per cent", the report authored by IIF economists Elina Ribakova, Benjamin Hilgenstock and Jonathan Fortun said.
“The cost to tourist destinations is already three times as large as during the Global Financial Crisis according to the World Tourism Organisation and, in our assessment, downside risks clearly dominate the outlook as Covid-19 infections rise rapidly once again around the world,” it added.
As a result of the collapse in tourism, services balances deteriorated significantly in the first half of 2020. The largest adjustments in GDP terms took place in smaller economies such as Cambodia, Georgia, Croatia, Jordan and the Dominican Republic, but large emerging markets including Thailand, Turkey, Malaysia and Hungary were also affected.
“Earlier, we expected the recovery in tourism to be slow, with large implications for economic activity, investment, and employment in many countries. Data for June-September supports the assumption of a weak pickup and even points to further storm clouds on the horizon.”
The coronavirus pandemic has brought the global travel and tourism industries to a near-halt and has tipped the global economy into a recession that is expected to be the deepest since the Great Depression, according to the International Monetary Fund.
The situation is particularly dire in Asia, where some of the most populous countries including India, Indonesia, and the Philippines have failed to control the virus outbreak, the Washington-based institute said.
Malaysia, Sri Lanka, Thailand, and Vietnam are likely to experience a particularly pronounced growth shock due to the large share of economic activity related to tourism.
“In addition to the impact on growth, deteriorating services balances will lead, in the absence of other adjustments, to dramatically larger external financing needs. Latin America and the Caribbean are vulnerable in this regard, especially Costa Rica, the Dominican Republic and Jamaica.”
Some key emerging markets including Mexico, South Africa, Thailand and Turkey are also vulnerable should tourism receipts fail to pick up, the report said.
Mexico is also set to suffer one of the most severe GDP contractions in Latin America this year at 10.1 per cent due to the Covid-19 shock and policy response constraints. A similar situation exists in South Africa, where poor growth dynamics remain a key concern.
“The drop in tourism is also partially responsible for the contraction of Thailand’s economy in 2020; however, external balances remain strong and the BOT (Bank of Thailand) has accumulated reserves. Turkey's tourism revenues fell sharply year-to-date.”
The IIF said that a full recovery in international travel is unlikely until a Covid-19 vaccine is widely distributed.
“According to current projections, this may not be the case before 2021 second-half. Even then, consumer behaviour may have been permanently altered, with a preference for domestic travel and less crowded attractions. Given the slow and uneven economic recovery, a considerable loss of disposable income will also continue to weigh on tourism revenues.”
The IIF expects a 60 to 70 per cent drop in tourism revenues in its baseline scenario as coronavirus cases continue to climb across the globe, especially in the US and Europe.
The coronavirus outbreak has claimed more than 1.18 million lives and infected more than 44.9 million people worldwide, according to Worldometer. More than 32 million people have recovered from the infection.
Governments in Europe are considering tighter lockdowns to prevent the spread of the pandemic.