Standard Life Investments

Weekly Economic Briefing

Global Overview

Tourism economics


Tourism often conjures thoughts of sun, sand, and crowds; but as a key component in global services trade, the sector also plays a large role in driving global growth. In this Weekly Economic Briefing, we look at the impact of the tourism sector and the factors that drive its growth. According to the World Bank, travel and tourism trade account for approximately 10% of global GDP and 30% of world services exports. Growing middle classes in China and India are continuing to push aggregate trade in tourism services to new highs. And as air travel becomes cheaper and more accessible, the sector is expected to continue expanding. This is important for developed and emerging economies alike (see Chart 1), as manufacturing trade remains structurally weaker relative to the past four decades, trade in services, particularly tourism and travel, will become a more important driver of the global economy.

Similar to trade in goods, competitiveness in tourism exports depends on many factors with direct policy implications. Beyond relative price competitiveness from currency fluctuations, tourism export competitiveness is also affected by concerns over safety and security, geopolitics, environmental sustainability, international openness, and infrastructure quality. The impact of such factors has become starkly evident as tourist trends have changed based on changing political and security factors. For example, French tourism exports were down nearly 7% year-on-year (y/y) in 2016 partially due to security concerns, and initial reports of airline bookings to the US shows a 3.4% y/y drop as of early June in part due to concerns over visa policies. Meanwhile, Turkey, where tourism is crucial, is suffering a sharp drop on the back of security and political risks. On the other hand, Asian countries are reaping the benefits of growing outbound Chinese tourism, but relative success is driven heavily by political factors. For example, improving diplomatic relations are partly credited with a 30% y/y rise in first-quarter Chinese arrivals to the Philippines. Meanwhile, Korea and Taiwan continue to lose market share due to political disagreements. Economic forces play a role, but governments would be wise to also focus on visa policies, security concerns, and the impact of geopolitics on this important sector.

Economic impact of travel