ECB - Developments in the tourism sector during the COVID-19 pandemic

ECB - Developments in the tourism sector during the COVID-19 pandemic

A salient feature of the coronavirus (COVID-19) pandemic has been the sharp and deep decline in mobility, which has caused a slump in tourism, trade in travel services and consumption by non-residents.  Lockdowns and social distancing measures led to strong declines in otherwise stable services consumption. This box takes stock of developments in the tourism sector, discusses how the impact of these developments on consumption has varied across countries and reviews the near-term prospects for a recovery in tourism and travel.

The slump in tourism and travel, reflecting restrictions and uncertainties related to people's movement across borders (e.g. owing to quarantine measures), led to a collapse in consumption by non-residents.  The effects of this collapse can be seen by looking at the difference between domestic consumption and national consumption (see panel (a) of Chart A). The former includes consumption of non-residents, whereas the latter only includes that of residents. For example, in Italy and Spain, domestic consumption by non-residents plummeted by more than 90% year on year in the second quarter of 2020, and similar declines were recorded in consumption expenditure of residents of these countries abroad, significantly exceeding the fall in national consumption.

Because of the decline in cross-border travel, consumption gaps – the excess of domestic consumption over national consumption owing to net expenditures by non-residents – almost closed in the second quarter of 2020 (see panel (b) of Chart A).  In other words, tourism has worked as a shock amplification channel during the COVID-19 pandemic in countries which are net exporters of travel services (i.e. countries which receive a lot of tourists, such as Spain, Greece and Portugal), as they experienced a sharp contraction of domestic private consumption, and as a shock cushioning channel in countries which are net importers of travel services (e.g. Germany). More specifically, in net creditors of travel services, the collapse of non-resident consumption expenditure caused domestic consumption to fall by more than national consumption, whereas the opposite occurred in countries which were net debtors of travel services before the onset of the COVID-19 pandemic. This pattern is also reflected in the sharp deterioration of the travel trade balance of the countries which are net exporters of travel services and in the improvement of the balance of net importers (see panel (a) of Chart A). Available data for the third quarter of 2020 show a partial and incomplete return of consumption gaps to the levels seen before the pandemic.