Covid-19 may cost tourism losses of US$ 3.3 trillion: UNCTAD

The Covid-19 pandemic may cost the global tourism industry US$ 3.3 trillion in losses, reveals a report by UNCTAD. The report - 'COVID-19 and Tourism: Assessing the Economic Consequences' - states that if the break in international tourism lasts for a longer period, the losses will rise significantly, dealing a huge blow to the global economy. This in turn could have a significant impact on employment and wages, particularly for economies heavily dependent on tourism.

Using a computable general equilibrium model (GTAP), the report assesses the implications of the Covid-19 crisis on the tourism sector. Depending on the duration of the global lockdown, the paper estimates the direct and indirect costs of the shutdown for 65 individual countries and regions and 65 sectors, covering the global economy.

The model captures the direct and indirect effects of the decline in international tourism receipts on the global economy. As demonstrated in the model, under the most optimistic tourism reduction scenario (lockdown for four months) global GDP losses will amount to an estimated US$ 1.17 trillion, about 1.5 per cent of global GDP. Extending the lockdown to eight and 12 months increases the losses to US$ 2.22 trillion (2.8 per cent of world’s GDP) and US$ 3.3 trillion (4.2 per cent of world’s GDP) respectively.

Further, the paper puts forward policy recommendations for governments to avert the worst effects and facilitate recovery. The report also focuses on the potential economic effects of the halt of tourism, in the short and medium term, in the major tourist destinations as well as in those countries highly dependent on tourism (as a share of GDP). The paper considers three different scenarios -Moderate (optimistic), Intermediate and Dramatic (pessimistic)- to quantify the impact of the reduction in global tourism on country incomes, trade and employment using a general equilibrium model which captures the backward and forward linkages between sectors.

In absolute terms, the world’s largest trading economies, USA and China face the largest declines in GDP. The USA incurs the highest losses with a drop of US$187 billion in GDP in the moderate scenario. China faces a loss of US$104 billion in GDP. Major tourist destinations such as Thailand, France and Germany stand to lose approximately US$47 billion each in GDP due to the contraction in tourism, while India stands to lose around US$ 28 billion.

Negative employment and wage effects are highest in countries reliant on tourism. Due to the possible mobility of labour, wage effects can spread across the economies. Denoting the changes in real wage rates for skilled staff, the steepest drops are in Thailand (-12 per cent), Jamaica (-11 per cent), and Croatia (-9 per cent), in the optimistic case, and two to three times more in the worst case.

Loss of employment in the unskilled sector is above 10 per cent in many countries even in the most optimistic (moderate) scenario and can rise above 40 per cent in the most pessimistic (dramatic) scenario.

A major finding from the analysis is that the GDP effects are much greater than the loss of tourist expenditure because of the indirect effects through the supply chain.

The damage incurred in the tourism sector goes beyond cancelled flights and hotel bookings. There is a strong case to be made for governments to intervene and cooperate at an international level to protect the lives and livelihoods around the world

Tourism provides a backbone to the economy of many countries, having more than tripled in value from $490 billion to $1.6 trillion in the last 20 years, according to UNWTO. But the COVID-19 pandemic has caused significant disruptions in the global economy. Even as tourism slowly restarts in some nations, many others are still under lockdown. Travel restrictions, reductions in disposable income and low confidence levels could significantly slow down the sector’s recovery.