Standard Life Investments

Weekly Economic Briefing


More vacation days, more holidays


The World Travel and Tourism Council estimates that the direct contribution of travel and tourism to GDP in broad Europe was €624.3 billion (bn) or 3.5% of GDP in 2016, with a total contribution – taking indirect effects into account – of 9.9% of GDP. Breaking this down, direct employment in the industry accounted for 3.7% of total employment, with estimates of total employment – direct and indirect – accounting for just fewer than 10% of total employment in the region. The tourism sector provides yet another example of how the Eurozone is divided; in this case, into desirable destinations and demand-driving consumers. It can be difficult to build a coherent picture of tourism and travel, with much country-level data released with a significant lag, not to mention the difficulties differentiating between domestic, intra-EU and extra-EU tourism.

Hey big spender Supply and demand

Balance of payments data gives us a partial insight into the relative importance of the tourist sector in Eurozone countries, by allowing us to identify the desirable destinations, as well as the sun-seekers, through travel receipts and expenditure. The results should not come as much of a surprise. Spain recorded the highest level of travel receipts in 2015 at €35bn, followed by France and the UK. However, in terms of the relative importance of the sector, travel receipts amounted to 18% of Croatian GDP, 13% of Maltese GDP and 12.7% of GDP in Cyprus. This high reliance on tourism also reflects the relative size and weakness of these economies – especially evident when we compare them to Spain, where travel receipts are a lower proportion of overall GDP at 4.7% in spite of being a major tourist destination. Meanwhile, on the expenditure side, Germany spent the most of all Eurozone countries on travel in 2015 by quite a margin at €69bn – for perspective, the next biggest spender was France at €34bn, half that of Germany. This chimes with more up-to-date data from the UN on tourism and travel spend per capita, which places Germany in third place internationally in 2016, behind Australia and Hong Kong (see Chart 6).

So far, so predictable; warmer, relatively low-cost destinations attract more tourists from the wealthier core, specifically Germany and to a lesser extent France – which is itself a major destination – and Belgium, as well as non-Eurozone tourists (see Chart 7). Looking ahead, the outlook for tourism in the Eurozone depends on a number of push and pull factors, including GDP and real income growth, currency and event risk. The supportive economic backdrop within and outside the Eurozone should mean good news for the tourist sector going into summer, with an increasing role for extra-EU tourists. Importantly, potential tourists are affected by not just generalised GDP growth but real income growth, the latter of which appears lacking in a number of Eurozone countries and the UK. Speaking of the UK, the relative strength of the euro versus the pound since the UK referendum means Euro-area travel will feel more expensive for British tourists this summer – conversely, a stronger US dollar in recent years continues to make Europe an affordable choice for Americans. Finally, the prevalence of terror attacks may affect tourist flows but evidence is patchy. French authorities noted a pick-up in tourism this year following declines in 2015/2016, suggesting some desensitisation to the terror risk – but the summer months will be the true test.

Stephanie Kelly, Political Economist