The effect of an economic or financial crisis on foreign tourism would ultimately rely on the nature of the crisis, such as stock market collapse, inflation, debt or banking crisis, or a combination of crises. Certain economic or financial crises, one may argue, can have a more severe or even stimulating influence on foreign travel than others.
For example, a financial crisis may result in currency depreciation, lowering the cost of tourist services and thereby boosting tourism flows. In comparison, an inflation crisis may increase the cost of tourist services, resulting in decreased tourism flows. As a result, it is critical to recognize the many sorts of crises.
The inflation issue has a lowering impact on foreign travel, both inbound and outbound. In an inflationary environment, demand for tourist services and expenditure drop as rising inflation erodes customers’ buying power. Additionally, a stock market fall dampens international tourist flows in destination nations but has little effect on origin countries. Businesses cut down on trip spending during the time of market turbulence, cutting demand for high-end hotel rooms.
Additionally, domestic debt crises result in an increase in international tourist arrivals in destination countries, whereas domestic debt crises result in a reduction in demand for international tourism services in origination nations. Domestic currency often loses considerable value compared to a basket of foreign currencies during periods of domestic debt crises.
As the entire cost of international tourism services decreases, the destination country becomes more appealing to foreign travelers. By contrast, when the local currency of the originating nations devalues significantly, prospective visitors’ spending power decreases, and as a consequence, demand for international tourism diminishes.
The consequences of various crises on international tourism vary by location. On the one hand, inflation crises are associated with a precipitous decline in consumer buying power, explaining the negative correlation between inflation and foreign tourism. On the other hand, demand for international tourist services is quite low in Africa, although European nations are relatively accessible geographically. Thus, low demand and distance may assist to explain why inflation is not a significant determinant in these places.
The tourist industry has been severely impacted by the coronavirus (COVID-19) outbreak and the ensuing containment efforts. According to updated forecasts, the possible shock might result in a 60-80% fall in the international tourist industry in 2020, depending on the length of the crisis. Apart from urgent help for the tourist industry, nations are also focusing on recovery measures. These include ideas for removing travel restrictions, reestablishing traveler trust, and reimagining the future of tourism.
These steps are critical, but more has to be done in a coordinated manner to effectively restore the tourist industry and get companies up and running, since tourism services are highly interrelated. The travel and tourism industries, as well as governments, should continue to strengthen their coordination mechanisms to assist enterprises, particularly small ones, and their employees. During the rehabilitation phase, special attention should be paid to the most sensitive/vulnerable locations.
Looking forward, the policies implemented now will define tourism in the future. Governments must examine the crisis’s long-term consequences now, while also remaining ahead of the digital curve, pushing the low-carbon transition, and fostering the structural reform necessary to establish a stronger, more sustainable, and resilient tourist sector. The crisis provides a chance to reconsider the future of tourism.