COVID-19 PANDEMIC OUTBREAK FOR GLOBAL ECONOMY AND T&T INDUSTRY
Who would have guessed that in a brief period of time, a market and a city would become known the world over, and the world would face a crisis as severe as or worse than the flu pandemic of 1918. Purportedly spreading from a farmer’s market in Wuhan, the local cluster of victims spread the COVID-19 virus beyond the city to the region, to the country, and beyond the borders of China.
The World Health Organization declared the COVID-19 outbreak a pandemic on 11th March 2020. The situation is evolving rapidly with global case counts and deaths increasing each day. Clinical trials and investigations to learn more about the virus, its origin, and how it affects humans are ongoing. The World Health Organization declared the COVID-19 outbreak a pandemic on 11th March 2020. The situation is evolving rapidly with global case counts and deaths increasing each day. Clinical trials and investigations to learn more about the virus, its origin, and how it affects humans are ongoing.
Even before COVID-19 struck the world, the global economic output was on a decline with some expecting that a recession was in the offing.
It is natural that when the global economy is on a slowdown mode no emerging economy can grow at its normal pace. Moreover, the Indian economy was grappling with its own issues and COVID-19 made the matters worse. India’s GDP has been on a consistent decline after peaking out at 7.9 in Q4 of FY 2018 to 4.5 in Q2 of FY 2020. The industry was facing demand problems, due to which business houses were reluctant to undertake CAPEX plans, unemployment was at its peak and exports which were consistently down for several months.
The pandemic on the back of an already slowing economy may prove to be lethal for developing countries. Moreover, the US is reluctant to assume global leadership under the Trump administration who is inclining for ‘America first’ policies. China with its high growth rate and 16 percent share in global GDP can assume the leadership role but western countries are skeptical about it due to the political and ideological differences.
It expects over $1.62 trillion sovereign debt maturing by 2020 and another $1.08 trillion by the year 2021. Moreover, according to UNCTAD estimates, due to COVID -19, these developing countries are expected to lose export revenue of $800 billion at a time when their currencies are taking a massive hit due to a sharp fall in the financial markets. This has enhanced the cost of servicing its dollar-denominated debt. In normal times, this kind of debt may get rolled over but now all economies are struggling to meet their own ends. Hence, if any of these countries default then it may trigger a debt crisis sending the global financial markets into a tailspin which may again delay the recovery process for the global economy.
Impact on Travel & Tourism (T&T)
The coronavirus arrived and changed the way we live and the way we travel. The near-term impact is likely to trigger economic recessions around the world. COVID-19 has brought a foreboding feeling about the future. At least in the near future, T&T will be different. Once-busy airports with thousands of travelers arriving or departing are now ghost places with deserted hallways, empty parking lots and mostly blank screens showing arrivals and departures.
Before the arrival of the coronavirus and during the period between 1950 and 2019, international arrivals achieved annual growth of between 5.5% in the Americas and 12.1% in the Asia Pacific.
Countries, where revenues from T&T account for 7% of exports or higher, will experience sector-related bankruptcies and worse unemployment figures than countries where T&T is less significant.
Thailand, Portugal, Jamaica, Spain, Turkey, and the Dominican Republic where the T&T sector provides between 16% and 50% of the GDP from exports are more vulnerable to declines in arrivals. Those six countries are expected to experience the more severe economic blow due to relative importance of the T&T economic sector, and may not be able to recover in the short or medium term.
The volume of international visitors has provided income to the private and public sectors, both at the macro and micro levels. Goods and services are purchased from international chains of stores and hotels and also from mom-and-pop businesses in each country. The data for the U.S. excludes arrivals from Canada, a country with a 37 million population and 22 million visitors to the U.S., and Mexico because the cross-border traffic would distort the data.
Arguably, exports of T&T may have a greater impact on a country’s economy than other exports with a similar share of the GDP. For example, let’s look at the cases of Turkey and Colombia.
Total exports from Turkey in 2018 were about $168 billion (TL 1.17 trillion), the T&T share of exports was 16.6%, or about $28 billion. Machinery and iron amounted to $26.4 billion, or about 15.4% of exports. We may, safely, argue that T&T has a greater impact on the economy given that expenditures on local transportation, souvenir shops, tourist guides, restaurants, etc. are distributed among many more entrepreneurs and operators than the exports of iron and machinery. In other words, more people tend to be employed in T&T than mining, and machinery.
Total exports from Colombia in 2018 amounted to $41.8 billion. The T&T share of exports was 12.3% or $41.8 billion. Exports of coffee, tea, spices, gems, precious stones, iron, steel, and sugar also amounted to about $41 billion, or about 12% of exports. However, more Colombians receive income from T&T than from coffee, gems, and iron combined.
Secondly, the overall impact of COVID-19 on T&T will be devastating, at least in the short run. A large share of the labor force employed in T&T will be out of work. Considering that the first waves of unemployment affect those with a very small, or zero marginal propensity to save, aggregate consumption will decline to lead to greater unemployment levels.
In 2020, we no longer indulge in leisure activities as we practiced them just a few decades ago. Thanks to the digital world, consumers may now visit new and exotic places without leaving the comfort of their home – not to dismiss the economic impact on resorts, hotels, and employment at such destinations.
Indeed, if the rapid growth of the web-mobile continues as expected, consumers may use cell phones and tablets to surf the web, to find travel information, to plan vacations, to make reservations, and to pay for travel goods and services. The mobile web will be the pillar supporting and promoting e-tourism. In the medium term, the digital world is expected to be an engine of T&T growth dominating all aspects of the industry.
Therefore, to embrace the digital change and to grow, the tourism sector must be social, local and mobile. This approach emerged as a result of the growth of smartphones and the greater local precision they provide.
Although COVID-19 is probably the worst threat T&T has ever faced, there is some room for optimism. International tourism is resilient and new alternatives such as the staycation tourist, and the digital and virtual tourist, will assuage the concerns of investors in the T&T industry and of governments around the world.
Of course, a successful T&T future will see new types of traveler. However, a more proactive partnership between the government and the private sector will be indispensable. Over-tourism may not be caused by unsuspecting tourists landing at airports and train stations too small to accommodate traveler volume.
Due to a lack of adequate infrastructure notwithstanding government revenues, the T&T sector may be labeled as an undesirable economic player and, in some cases, may kill a major contributor to economic growth. As COVID-19 runs its course, attacking health and economies, there is now an opportunity for potential hosts and guests to better prepare for a richer and more rewarding tourism experience.
