International tourism decline and its impact on external balances in the euro area

Tourism was one of the activities most hard-hit by the pandemic. The containment measures to fight COVID-19 included restrictions on activities in the hospitality sector and on international travel. This section estimates the impact of the pandemic on cross-border tourism in the euro area during 2020, and evaluates the effect of the decline in international tourism on trade balances, using data on trade in value added and input-output tables to gauge direct and indirect effects. Using tentative projections of nights spent by foreign tourists in 2021 and 2022, the section also estimates the impact on the trade balances of euro area countries going forward. Results show that several tourism-intensive countries, some already with weak external positions, were hit strongly in 2020, and that the full recovery in these countries, which include Greece, Cyprus, Malta, Portugal, and Spain, may extend beyond 2022, even in an optimistic scenario. Conversely, for some euro area countries such as Belgium, Germany, Finland and the Netherlands the results point to positive partial effects from the decline in international tourism on trade balances, which in some cases helped to maintain their trade surpluses. Overall, the pandemic-induced decline in international tourism exacerbated, at least temporarily, the existing external sector imbalances within the euro area.