Covid-19 impact on tourism could cause US$4 trillion loss to global economy

The crash in international tourism due to the coronavirus pandemic could cause the global economy to lose more than US$4 trillion for the years 2020 and 2021, according to a recent United Nations Conference on Trade and Development (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.

Advancing vaccination is critical to support tourism’s recovery, says UNWTO; an unusually empty Spanish Steps in Rome, Italy, amid the Covid-19 pandemic pictured

The report, jointly presented with the UN World Tourism Organization (UNWTO), said international tourism and its closely linked sectors suffered an estimated loss of US$2.4 trillion in 2020 due to direct and indirect impacts of a steep drop in international tourist arrivals.

UNCTAD warned that a similar loss may occur this year, and that the tourism sector’s recovery will largely depend on the uptake of Covid-19 vaccines globally.

“The world needs a global vaccination effort that will protect workers, mitigate adverse social effects and make strategic decisions regarding tourism, taking potential structural changes into account,” UNCTAD acting secretary-general Isabelle Durant said.

UNWTO secretary-general Zurab Pololikashvili said: “Tourism is a lifeline for millions, and advancing vaccination to protect communities and support tourism’s safe restart is critical to the recovery of jobs and generation of much-needed resources, especially in developing countries, many of which are highly dependent on international tourism.”

The report also noted that tourism losses are reduced in most developed countries where Covid-19 vaccinations are more pronounced, but vaccine inequality has left developing countries still reeling in the doldrums.

Covid-19 vaccination rates are uneven across countries, ranging from below one per cent of the population in some countries to above 60 per cent in others.

According to the report, the asymmetric rollout of vaccines magnifies the economic blow tourism has suffered in developing countries, as they could account for up to 60 per cent of the global GDP losses.

A faster tourism recovery is expected in countries with high vaccination rates, such as France, Germany, Switzerland, the UK and the US, said the report.

However, UNWTO highlighted that experts don’t expect a return to pre-Covid international tourist arrival levels until 2023 at the earliest, due to travel restrictions, slow virus containment, low traveller confidence and a poor economic environment.

While a rebound in international tourism is expected in the second half of this year, the UNCTAD report still showed a loss of between US$1.7 trillion and US$2.4 trillion in 2021, compared with 2019 levels.

The report assessed 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 per cent 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 US$948 billion causes a loss in real GDP of US$2.4 trillion, a two-and-a-half-fold increase. This ratio varies greatly across countries, from onefold to threefold or fourfold.

Figure 2: Estimated losses in GDP by region from reduction in tourism (percentage)

The second scenario reflects a 63 per cent 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 per cent reduction of tourism in countries with low vaccination rates, and a 37 per cent reduction in countries with relatively high vaccination rates, mostly developed countries and some smaller economies.

UNCTAD said that losses are worse than previously expected. In July last year, the conference estimated that a four- to 12-month standstill in international tourism would cost the global economy between US$1.2 trillion and US$3.3 trillion, including indirect costs.

But that projection has turned out to be “optimistic”, as international travel remains low more than 15 months after the pandemic started, UNCTAD said.

According to UNWTO, international tourist arrivals declined by about one billion or 73 per cent between January and December 2020. In the 1Q2021, the UNWTO World Tourism Barometer points to a decline of 84 per cent.

Figure 3: International tourist arrivals (in thousands)

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 per cent and 80 per cent.

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.