Travel and tourism take outsized hits amid Covid-19 crisis, warns new research

The outsized financial hits taken by the travel and tourism industry worldwide from the from Covid-19 fallout has huge implications for the future of the industry here and even for the global financial system, new research suggests.

The outsized financial hits taken by the travel and tourism industry worldwide from the from Covid-19 fallout has huge implications for the future of the industry here and even for the global financial system, new research suggests.

The study by consultancy firm Capital Economics starkly says “the strain” on airlines and insurers is adding to the sense of a financial crisis around the world “and increasing pressure on governments to act quickly to support affected industries”.

Jennifer McKeown, head of its global economics service, estimates the travel and tourism industries are so central to the global economy and to the prosperity of individual countries that their woes could strip billions from the world economy — and cost global GDP as much as 0.7%.

“The data we have suggests that it is reasonable to assume that overall travel and tourism activity will fall by about 50% during the most severe stage of the virus, with perhaps a 90% decline in foreign travel and tourism and a 30% decline in domestic,” Ms McKeown says.

“Travel and tourism is clearly one of the hardest hit sectors in the coronavirus crisis. In a realistic scenario where travel and tourism dropped by 50% for four or five months, annual global GDP growth would be reduced by about 0.7 percentage points,” she says.

And that is before taking account of other costs.

“Indirect effects or disruption to domestic travel could make the hit even harder. What’s more, the strain on insurers and airlines is adding to the risk of a financial crisis.”

There is a huge body of evidence pointing to a looming crisis.

She cites figures from the World Travel and Tourism Council, which says domestic travel and tourism accounted for 70% of the industry last year and domestic travel should be less affected than foreign travel.

However, she says: “Travel restrictions are becoming more prevalent, with several governments warning against all but essential foreign travel and flights banned outright to numerous locations.

“China and Europe have been most affected so far, but it seems fair to assume that restrictions will spread,” she notes. The pain is unevenly spread, however.

“Small island economies in the Caribbean and Indian Oceans seem most vulnerable to a slump since the sector directly accounts for as much as 40% of their GDP, including the Maldives, British Virgin Islands, Aruba and the Seychelles are at top the charts,” she says.

The next worst hits will likely be taken by Thailand, Greece, Mexico and Portugal, where tourism accounts for as much as 10% of their GDP, while Italy’s share is 5.5%, she says.

“Tourism-dependent economies like Italy, Spain, Mexico and Thailand will be hit harder,” Ms McKeown estimates.

“But the strains in travel and tourism are adding to a sense of global uncertainty and increasing pressure on governments to act quickly to support affected industries,” she warns.

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