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Alpha Bank: The contribution of tourism to the rate of economic growth and the medium-term challenges

2022 will probably emerge, according to the data available so far, – as noted by Alpha Bank in its weekly economic developments report – a new record year for Greek tourism, as travel receipts are expected to approach 20 billion euros, exceeding significantly the corresponding size of 2019 (18.2 billion euros). Among other factors, the two years of the pandemic led to a greater need for travel, while the accumulated savings of the period of restrictive measures in force expanded their financing possibilities. This development is estimated to lead to:

– the continuation of the strong dynamic rise of the GDP, in the second and third quarters of the year, as a result of which it approaches levels significantly higher than the average of the European Union (EU-27),

– in strengthening government revenues, creating sufficient fiscal space to take additional measures to support households and businesses against the rising price level caused by the energy crisis.

At the same time, the exit of the Greek economy from the regime of enhanced supervision strengthens the flexibility in the exercise of fiscal policy, within the framework of the rules applicable at EU-27 level. The impressive increase in tourist traffic, however, brings to the fore the need to readjust the business models of the tourism sector, with the aim of: (i) their sustainability against the threat of climate change and overtourism, in certain periods of time, or destinations and (ii) ensuring that the quality of the country’s tourism product follows the modern trends (megatrends) on the demand side.

Travel Receipts and expansion of fiscal space

In the first half of 2022, Greece was visited by almost 8 million travelers from abroad, while travel receipts amounted to 5.1 billion euros, with these figures falling short compared to 2019 by 15% and 5.3% , respectively. In addition, the average expenditure per trip was increased compared to the period January-July 2019 by 12.6%. In terms of travel arrivals by country, the largest percentage came from the EU-27, specifically from Germany (18%) and France (7%), while tourists from the United Kingdom and the USA amounted to 15 % and 4% of the total. Accordingly, 21% of travel receipts in the first half of 2022 were made by travelers from Germany, 15% from the UK, 7.4% from France and 6.6% from the US. In addition, passenger traffic accelerated within the previous month, with international arrivals at Greek airports up by around 200% in the January-July 2022 period, compared to the same period in 2021.

At the same time, the total value of goods imports increased by 49%, on an annual basis, due to the simultaneous rise in inflation and consumption, which led to a significant increase in the deficit of the balance of goods in the first half of 2022, to 17.9 billion . euros from 10.9 billion euros in the first half of 2021. The percentage of coverage of the trade deficit by travel receipts, however, amounted to 28.6%, compared to 11% in the same period of 2021. It is worth noting that the receipts from tourism financed the trade deficit by 44%, on average, in the five years 2015-2019.

In addition, tourism receipts boosted, among other things, during the first half of 2022, the revenues of the General Government, which amounted to 41.8 billion euros compared to 35.3 billion euros in the same period of 2021, registering an increase of 18 .5%. The increase in VAT revenues was significant, as they amounted to 8.4 billion euros compared to 6.7 billion euros in the first half of 2021. According to the most recent State Budget data, in fact, this year’s State Budget revenues up to and in July, tax revenues in particular exceeded estimates by 4.2 billion euros. It is worth noting, however, that some of the increased revenue should also be attributed to inflation, as revenue is calculated in nominal terms.

In conclusion, Greek tourism is heading for an excellent year, supporting public finances, despite inflationary pressures worldwide and the environment of high uncertainty that has emerged following the Russian invasion of Ukraine and the energy crisis. In addition, the prospects for the Greek tourism product remain particularly positive. This assessment is supported by international trends such as the growth of the middle class in emerging Asian economies (e.g. China, India) and life expectancy which are expected to lead to an increase in tourist flows worldwide (Deloitte, REMACO, INSETE, “Hellenic Tourism 2030 Action Plans”, 2021), as well as domestic factors, such as the increase in investment activity, particularly through the resources of the Recovery Fund.

Overtourism, lengthening of the tourist season and new challenges

However, in order for the rise of tourism to be maintained and made sustainable in the medium-long term, the new challenges that arise need to be addressed.

Hypertourism constitutes one of the most important challenges, as its consequences (overbuilding, overloading/lack of infrastructure, burden on the environment) can alter the quality of the services provided, with the opposite of the desired results for the tourism product and the reputation of the country. It is worth noting that according to a recent study (INSETE Intelligence, TCI Research, “Athens/Greece Sentiment Tracker”, July 2022), the general reputation of Greece on the internet exceeded that of Spain and Portugal in July, boosted by factors such as culture, food, accommodation and events, lagging behind Italy.Last month, however, our country’s reputation fell slightly due to the travel experience (accommodation, dining, sightseeing, etc.), following the downward trend which was recorded at the global and European level, a phenomenon that is often observed at the peak of the tourist season.Finally, according to the research in question, issues related to the climate (heat wave, fires, etc.) had a negative impact on the reputation of our country .), the increasing cases of Covid-19, high restaurant charges etc.

In addition, a possible structural shift of inbound travel traffic in Greece towards higher income brackets drags the total prices upwards, affecting domestic tourism, especially the middle and low income strata. At the same time, the effects of climate change, such as higher temperatures, extreme weather conditions, lack of resources, as well as the erosion of the natural environment are expected to have a significant negative impact on the tourism industry. The tourism industry is also expected to be affected in the medium to long term by global trends, which are a priority of European policy -such as the green and digital transition-, and concern the development and use of technology in everyday life, changes in the behavioral patterns of travelers , but also in demographic developments.

Given these, an answer to the challenges facing tourism can be given through strategic planning. The extension of the tourist season – even by one month – can on the one hand give a permanent increase to the GDP of the country and on the other hand significantly mitigate the risk of over-tourism in the future in certain time periods of the summer, or areas. The effective management of tourist flows, natural and cultural resources, the development of alternative forms of tourism and new destinations, the preservation of the unchanged character of the destinations, rural and residential areas, the increase in income without an excessive increase in visitors, are goals to achieve of which will give further impetus to Greek tourism, while preserving the resilience of the sector and the identity of the destinations and local communities. The increase in tourist flows should no longer be a primary objective, as much as their distribution in more regions of the country, throughout the year.

You can read the Alpha Bank Weekly Economic Developments Bulletin in detail in the attached file in the right column “Related Files”.

Source: Capital

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