Comment: Impact of Eurozone crisis on travel

Euromonitor International evaluated the potential impact of the Eurozone crisis on the region’s travel and tourism industry based on a review of previous economic downturns. Paz Casal, Travel and Tourism Analyst at Euromonitor International investigates further.

"To best illustrate the potential impact of the Eurozone crisis on the region’s travel and tourism industry, Euromonitor International modelled three different outcomes for 2012 – one best case scenario and two worst case scenarios, the latter two being a Greek exit and the complete break-up of the Economic Monetary Union.

Best case scenario

Even in the best case scenario, the prospects for Europe remain weak in 2012. The second election Greece came down in favour of Europe and the associated austerity measures, which puts an end to the uncertainty surrounding Greece’s place in the Eurozone. Despite a bailout for Spanish banks, market concerns remain regarding the ability of Spain and also Italy to fund their sovereign debt. Based on the assumption that the Eurozone crisis is not exacerbated further, the EuroZone is expected to experience a 0.7% contraction in real GDP in 2012 due to recessions in its Mediterranean members, followed by a mild expansion of 0.8% in 2013.

Worst case scenario 1 – Greek exit

The second election in Greece marked a major event for the Eurozone project and the European Union as a whole. Increasingly seen as a referendum on Eurozone membership, the result has abated concerns that Greece will be forced out of the euro. The cost of a Greek exit from the EuroZone would be heavy, albeit not marking the outright end of the euro, with GDP expected to decline by 2.5% for the Eurozone as a whole.

Worst case scenario 2 – EuroZone break-up

The potential collapse of the Eurozone remains a possibility and it cannot be ruled out that several Member States would be forced to leave the euro, which in turn could cause a chain reaction, ending with a complete break-up. This would lead the region’s economies to shrink by as much as 9.8% in the first year, followed by a further decline of 2.8% in 2013. A recession would be experienced across the entire Eurozone, dragging down the global economy into a potential global double dip.

Inbound tourism – best and worst case scenarios

Amid growing uncertainty about the future of the Eurozone in 2012, travel and tourism in the region remains depressed. The austerity measures implemented in several European countries are expected to result in lower disposable incomes and rising unemployment, thus reducing intra-regional travel and spending.

The Eurozone saw strong growth in arrivals from emerging economies in 2011, particularly Russia, China and Brazil. It is hoped that this trend will continue throughout 2012, but it is unlikely to compensate for the decline in intra-regional visitors.

The Eurozone is is anticipated to continue to struggle, posting an expected decline in arrivals of 0.7% in 2012, down from 4.3% in 2011. However, the continued weakening of the euro against major currencies may have a more positive impact, attracting high spending North American visitors.

In the event of a Greek exit or a disorderly break-up, tourism arrivals in the Eurozone could drop by as much as 2.8%or11%, respectively, due to the resulting sharp European recession and negative global economic consequences. As unemployment rates rise, consumers start to cut unnecessary costs. Consumers become more cautious and less likely to travel abroad.

Incoming tourism receipts in the Eurozone are forecast to decline by 1.2% in 2012 or by as much as 4.4% or 17.3%, respectively, in the above-mentioned worst case scenarios. In the Great Recession, business travel fell sharply in response and is likely to mirror this trend.

Domestic tourism tends to be more resilient in a crisis as a weak currency encourages tourists to travel domestically instead of internationally. Domestic tourism volume in the Eurozone is expected to remain stagnant in 2012 but would slow in the case of a Greek exit or a Eurozone break-up by 0.1% or 0.2%, respectively.”