The crash in international tourism due to the coronavirus pandemic could cause a loss of more than $4 trillion to the global GDP for 2020 and 2021. This is according to an UNCTAD report. The estimated loss has been caused by the pandemic’s direct impact on tourism and its ripple effect on other sectors closely linked to it.
The report, jointly presented with the UN World Tourism Organization (UNWTO), says international tourism and its closely linked sectors suffered an estimated loss of $2.4 trillion in 2020 due to direct and indirect impacts of a steep drop in international tourist arrivals.
A similar loss will occur in 2021. Tourism sector’s recovery will largely depend on the uptake of COVID-19 vaccines globally. COVID-19 vaccination rates are uneven across countries, ranging from below 1% of the population in some countries to above 60% in others. According to the report, the asymmetric roll-out of vaccines magnifies the economic blow tourism has suffered in developing countries. These countries may account for up to 60% of the global GDP losses.
The tourism sector is expected to recover faster in countries with high vaccination rates, such as France, Germany, Switzerland, the United Kingdom and the United States, the report says. But experts don’t expect a return to pre-COVID-19 international tourist arrival levels until 2023 or later, according to UNWTO. The main barriers are travel restrictions, slow containment of the virus, low traveller confidence and a poor economic environment.
The report assesses the economic effects of three possible scenarios – all reflecting reductions in international arrivals – in the tourism sector in 2021.
Figure 1: As tourism falls world GDP takes a hit in 2021 (3 alternative scenarios)
The first one, projected by UNWTO, reflects a reduction of 75% in international tourist arrivals – the most pessimistic forecast – based on the tourist reductions observed in 2020. In this scenario, a drop in global tourist receipts of $948 billion causes a loss in real GDP of $2.4 trillion, a two-and-a-half-fold increase. This ratio varies greatly across countries.
Figure 2: Estimated losses in GDP by region from reduction in tourism (percentage)
The second scenario reflects a 63% reduction in international tourist arrivals, a less pessimistic forecast by UNWTO. And the third scenario, formulated by UNCTAD, considers varying rates of domestic and regional tourism in 2021. It assumes a 75% reduction of tourism in countries with low vaccination rates, and a 37% reduction in countries with relatively high vaccination rates, mostly developed countries and some smaller economies.
According to the report, the reduction in tourism causes a 5.5% rise in unemployment of unskilled labour on average, with a high variance of 0% to 15%, depending on the importance of tourism for the economy. Labour accounts for around 30% of tourist services’ expenditure in both developed and developing economies. Entry barriers in the sector, which employs many women and young employees, are relatively low.
In July last year, UNCTAD estimated that a four- to 12-month standstill in international tourism would cost the global economy between $1.2 trillion and $3.3 trillion, including indirect costs. But the losses are worse than previously expected, as even the worst-case scenario UNCTAD projected last year has turned out to be optimistic, with international travel still low more than 15 months after the pandemic started.
According to UNWTO, international tourist arrivals declined by about 1 billion or 74% between January and December 2020. In the first quarter of 2021, the UNWTO World Tourism Barometer points to a decline of 88%.
Developing countries have borne the biggest brunt of the pandemic’s impact on tourism. They suffered the largest reductions in tourist arrivals in 2020, estimated at between 60% and 80%. The most-affected regions are North-East Asia, South-East Asia, Oceania, North Africa and South Asia, while the least-affected ones are North America, Western Europe and the Caribbean.
It looks like a long haul for recovery. Many had viewed 2022 as the year for recovery. IATA believes it won’t be until 2023 that passenger numbers are expected to reach pre-pandemic levels. For Southeast Asia it may be 2024. The chart below (IATA) suggests a conservative outlook:
Source: IATA/Tourism Economics Air Passenger Forecasts, November 2021
The implications are severe for our hotel, aviation, tourism and other related sectors. Will the Government do anything?
References:
1. Global economy could lose over $4 trillion due to Covid-19 impact on tourism, UNCTAD, 30 June 2021 (https://unctad.org)
2. 20 Year Passenger Forecast, IATA (https://www.iata.org)
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