The Worry Of A Fall In Tourist Spend

Mario Draghi, the president of the European Central Bank, is not someone you would necessarily expect to crop up in a tourism article, but what he said earlier this week merits that he does. Draghi suggested earlier this week that recovery in the Eurozone was losing impetus, pointing to a stalling of growth during the second quarter and to indicators through the summer which have been weaker than expected. This economic performance cannot of course solely be attributed to activity in the tourism sector, but tourism does play a key role in measuring this performance.

Questions are often asked about the tourism spend statistics which get trotted out with monotonous regularity and which, for many, appear to bear little relationship with evidence on the streets and terraces of Mallorca's resorts. These statistics are far from perfect, but it needs to be remembered that their principal function is one determined by the Bank of Spain and, by association, the Central Bank and European institutions. They feed into economic performance measures, and so when, as was the case in July this year, Spain shows a slight fall in tourism spend (1.3%), there is cause for a few eyebrows to be raised and for foreheads to be furrowed.

This fall in expenditure seems odd because the number of tourists has been at record levels, as they have been in Mallorca. So, how does one explain the decrease? The simple answer is that tourists are spending less, but this isn't only because tourists are being more careful with their money while on holiday. They are also staying for shorter periods. Overnight stays for July and August combined rose by only 0.2% (a figure for Spain as a whole). When tourist arrivals increase by almost 9% (as they did in August) but overnight stays barely increase at all, you get what is in fact the situation. There is simultaneously a mini-boom in the number of tourists and a contraction in tourist expenditure. And it is this contraction that concerns Draghi and should also concern the national government in Spain and the regional government in the Balearics.

The announcement by Spanish finance minister Cristóbal Montoro of some relaxations in the pipeline on tax has been very welcome, and in the context of tourism, these may well filter through to the domestic market, which has already shown good signs of recovery this summer and which has been helping to fill the void left by a significant fall in Mallorca's Russian market. But Spain can't affect the expenditure of tourists from other countries. Draghi is calling for "unconventional measures" to counteract a lack of credit, and it would certainly appear to be the case that unless there is more credit (and more employment) in the Eurozone (and the UK) the contraction in tourist expenditure will continue, thus producing an unwelcome cycle which might ruin some of the good work the Rajoy administration has been doing. In addition, there is the Russian question. This market, hampered by obvious events, by sanctions and by the exchange rate, is enduring a genuine crisis, reflected by the numerous bankruptcies of Russian tour operators, many of which were not on a firm financial footing anyway. The bankruptcies will only help to further deter Russian tourism to the island and to Spain, and with everything else occurring in Russia and Ukraine, next summer is looking distinctly uncertain.

So, there is a double whammy of what had been a rapidly growing market being in crisis and of expenditure contraction in stable, long-established markets. Record numbers of tourists might sound all well and good, but records or not, there are some serious questions to be asked about next summer.