Back to Europe’s beaches

A resumption of tourism will boost the Spanish, Greek and Portuguese economies

21 May 2021 Chris Hare, Senior Economist and Fabio Balboni, European Economist

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European COVID-19 infection rates are falling and vaccine rollouts are accelerating, allowing the EU and UK to loosen non-essential travel restrictions. That matters: tourism comprises almost 15 per cent of GDP in Spain and 20 per cent in Portugal and Greece.

Spain and Greece last year saw travel services exports drop around 75 per cent from 2019, with Italy and Portugal down around 60 per cent.

Tourism matters most to Southern European economies but they depend on demand from Northern Europe, particularly the UK and Germany. The season usually starts in Easter and peaks in July and August before school holidays end and the weather cools. So the race is on to re-open this summer.

If inoculated travellers are allowed virtually unfettered movement, vaccine rollout is key. Around half of German adults and two-thirds of UK adults are projected to be vaccinated by mid-July.

Older people are being prioritised, so will benefit first from test-free travel. However, only a small proportion of UK under-40s have received a first vaccine and the three-month wait until the second dose means many will need to take tests before a summer holiday. Children must be tested too, plus tourists returning to the UK, and the cost and inconvenience could slow the tourism recovery.

Spain and Greece were hit hardest last year, while Italy and Portugal staged a tentative late-summer recovery. Spain had an almost lost year for tourism and spending by foreign tourists this March was only around 1 billion euro, compared with 15 billion euros in 2019.

Our baseline is for a gradual recovery of foreign tourism in Europe, starting from June and reaching around half of pre-crisis levels in the third quarter with a return to pre-pandemic levels by the end of 2022.

Last year tourism subtracted 6 percentage points from Greece’s GDP growth, contributing substantially to the overall 8.2 per cent contraction. Portugal’s growth was reduced by 3.5 points and Spain’s by 3 points. Our central case sees tourism boosting growth in Spain and Portugal by around 1 percentage point this year with a 2-point boost for Greece. In 2022, the impact on GDP growth could be 2 points for Spain and to up to 4 points in Greece.

That will help those countries’ balance of payments too, but Germany and the UK, which benefited from people staying at home, will now lose. Their gains from ‘staycations’ did not equal the southern European countries’ losses, but their increased savings may now finance their pent-up demand to travel.

Tourism should contribute to many periphery economies’ growth, but it could also reduce the risk of scarring. Spain, for example, still has 300,000 catering workers in short-time work compensation schemes – about half the total – and a faster recovery that restores jobs could prevent their skills deteriorating, besides helping government finances.

And a quicker recovery might improve investment in tourism using the EU’s 750 billion euro Next Generation fund, further boosting near-term growth.

There are huge uncertainties around these assumptions but, if anything, European leaders’ commitment to re-open borders as soon as possible suggests growth this year could exceed our expectations. So, for so many reasons, it would be good to get back to the beach.

First published 13 May 2021.

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