Global Macro: Which countries would be hit the most by a collapse in global tourism? – Global tourism flows have collapsed since the outbreak of the coronavirus, either because authorities have put certain countries in a state of lock-down, or have issued negative travel advice, or because tourist have cancelled or postponed trips voluntarily. In order to assess which countries would suffer the most from this drop in cross-border tourism we have looked at World Bank data for the eurozone, the US, the UK, Japan, China and South Korea. The eurozone data relate to the individual member states, implying that they include intra-eurozone tourism flows, which of course inflates the data when compared to larger countries such as the US, where a lot of tourism and travel is registered as being domestic. The data reveal that income from spending by foreign visitors as a share of GDP ranges from close to 1% in the US, China, Japan, South Korea and Germany, to close to 6% in Spain and close to 10% in Greece and Portugal. If we assume that these expenditures by foreign visitors drop by 50% during a period of two months, GDP growth in Germany, the US and Japan would be around 0.1pp lower. For Spain this negative impact on growth would be around 0.5pps and for Greece and Portugal almost a full percentage point. That said, reports about the drop in tourism suggest that the risks to these calculations are tilted to the downside as the disruptions could be more sizeable and could also last longer.
Alternatively, if we look at the countries that would benefit the most if their residents decided to spend their holidays in their homeland instead of abroad, it turns out that China, the UK, Germany and a number of smaller eurozone countries have the most to gain, as they have deficits on their net tourism balances, implying that their resident spend more money abroad than foreign visitors spend in their countries. The countries that have the most to lose on balance are to be found in the eurozone periphery, specifically Greece, Portugal and Spain. (Aline Schuiling)
UK Macro: A well-coordinated response, but more will be needed – UK monetary and fiscal authorities announced coordinated measures today to cushion the economic blow from the coronavirus outbreak. First, the Bank of England cut its policy rate by 50bp to 0.25% (as we had flagged on Monday), and this afternoon, the UK Chancellor (or finance minister) announced a stimulus package totalling GBP30bn (1.4% of GDP). The latter includes a GBP5bn emergency coronavirus fund for the National Health Service, alongside relief measures for businesses affected by the coronavirus, including: a commitment to cover the costs of sick pay for small businesses (<250 people), the suspension of business rates (a property tax on shops, restaurants, etc) for one year, and a business interruption loan scheme, providing loans of up to GBP1.2mn to SMEs to weather the coronavirus storm. In measures that were likely devised before the coronavirus outbreak, the government also announced a GBP600bn infrastructure investment plan, although this will be spent over the next five years, and is unlikely to move the needle for GDP growth for some time yet.
We judge that more measures will likely be needed to combat the coronavirus fallout, both on the monetary and the fiscal front. As we discussed in Monday’s Daily, we expect the Bank of England to restart QE as its next step. Previously, we had expected this to happen in April, but with the 50bp cut coming earlier, we now expect this to happen at the 26 March scheduled MPC meeting. On the fiscal front meanwhile, we judge that the government’s 2020 GDP growth projections are overly optimistic, at 1.1% (ABN AMRO: 0.8%, with downside risks), and that as the economic fallout intensifies, additional measures will become necessary. (Bill Diviney)