Tourism is now bigger than construction was during the real estate bubble.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Since hitting rock bottom in 2013, Spain has been one of the biggest engines of economic growth in Europe, expanding at around 3% per year. But according to a report by the Bank of Spain, most of the factors behind this growth — such as cheaper global oil prices, the ECB’s expansionary monetary policy, and the subsequent decline in value of the Euro — are externally driven and transitory in nature.
This is particularly true for arguably the biggest driver of Spain’s economic recovery, its unprecedented tourism boom, which some local economists are finally beginning to call a bubble.
In large part the boom/bubble is a result of the recent surge in geopolitical risks affecting rival tourist destinations like Turkey, Egypt, Tunisia and, in smaller measure, France, which helped boost the number of foreign visitors to Spain in 2016 to a historic record of 75.3 million people — an 11.8% increase on 2015.
Based on first-half figures for this year, the trend is set to continue, at least for a little while longer. Between January and June 2017 36.3 million foreign visitors came to Spain — an increase of 11.6% on the same period of 2016. But if recent developments are any indication, this year’s surge in visitors could well represent Spain’s tourist boom’s final swansong.
Rising “Tourism-phobia.” After years of growing public opposition to the unrestrained growth of the Barcelona’s tourist industry, the city has witnessed a rash of coordinated attacks against tourist targets led by Arran, the youth wing of the radical separatist CUP (Popular Unity Candidacy) party. Arran’s highly publicized actions have spawned a flurry of copycat attacks in places like Palma de Mallorca, San Sebastian and most recently Tenerife.
The Spanish Prime Minister Mariano Rajoy condemned the acts of vandalism, warning protesters that the tourism trade is essential to the country’s prosperity.
He’s absolutely right: Spain’s tourist industry represents around 13% of the entire economy. That’s two-and-a-half percentage points larger than the contribution of Spain’s construction sector at the peak of Spain’s mind boggling housing boom in 2007.
Tourism has also played a vital role in Spain’s economic recovery, accounting for 26% of the 1.4 million new jobs created since 2013. Without those jobs, the total number of unemployed in Spain would quickly surge back over the 20% mark. The impact on Spain’s biggest tourist regions such as Catalonia and the Balearic Islands would be even more pronounced, since almost 40% of the new jobs created there since 2013 there depend on tourism.
Biting the hand that doesn’t quite feed you. What Rajoy conveniently ignores is that the benefits of Spain’s massive tourist boom have been enjoyed almost exclusively by businesses and property owners, while the externalities (sky-high prices and rents, overcrowding, noise, overstretched public services and infrastructure, the erosion of the town or city’s distinctive character, and the gradual formation of a mono-dimensional economy) have been distributed far more broadly.
Profits across virtually all categories of the sector (apart from five-star accommodation) are up on average by 10% year on year, according to Spain’s national statistics agency. Yet those profits are not being shared evenly. So far this year there have been 139 collective bargaining agreements in the sector, which have led to a median wage increase of just 1.28% — not enough to even cover “official” inflation, which in July was 1.5%. In other words, for the 519,373 people covered by these agreements, their wages have actually gone down in real terms over the last year.
Many employers, in particular large hotel groups, have refused to raise salaries at all for their workers despite the eye-watering profits they’re making. All this is happening against a backdrop of soaring rents. In July rents in Spain increased year-on-year by 9.6%. The trend is most pronounced in the most popular tourist destinations like Santa Cruz de Tenerife (15.7%), Alava (15.6%), Barcelona (14.3%), and the Balearic Islands (10.1%).
The limits of growth. For many businesses, investors and lawmakers, the sky is the limit when it comes to the tourist industry’s future growth potential. Yet many of Spain’s hot spots are already so saturated that even the tourists are beginning to complain. In a recent study by the Barcelona City Council, 40% of the tourists surveyed thought that prices in the city were too high, while 59% believed that the streets and main sights were too crowded.
Things have gotten so bad in Barcelona that even the Chamber of Commerce is calling for action, including a large hike in the tax day-tripping tourists must pay to visit the city. 17 million of the 35 million people who visit the city each year do not even stay the night. The Chambers president Miquel Valls lamented that Barcelona is living through a “tourist invasion” and he called for fewer tourists and more quality.
According to the world’s biggest tourist operator, German-based TUI, Spain is already far too overcrowded and European tourists should begin to look elsewhere for better deals, such as Cape Verde and Bulgaria. “If demand is very high and prices are high, other destinations benefit because they are more accessible. That is what is happening now,” said the group’s CEO, Fritz Joussen.
Brexit backlash. British holidaymakers accounted for 23% of all foreign visitors to Spain last year. For the moment, Brexit has not affected the British appetite for Spanish holidays — in fact the number of visits actually increased by 12.6% in 2016. But if the pound sterling continues to fall sharply against the euro or a hard Brexit becomes a reality, Spain will probably receive fewer British tourists, and that is likely to have a major impact on the number of visitors.
Taken together, these recent developments should give serious cause for concern among Spanish businesses, authorities and investors, both domestic and foreign. Tourism may have saved Spain’s economy from an even deeper economic malaise, but it is also replacing other activities and displacing locals and their economic contribution.
One of the main reasons behind Spain’s tourist boom is that the country is broadly perceived as a safe, stable destination. Unless the government and business community address the causes of public hostility to mass tourism, including sharing the spoils more equitably and combating some of the externalities it produces, that perception could change very quickly. And by now it’s abundantly clear that without the recent spectacular growth in tourism, Spain’s “miraculous” economic recovery would come to a shuddering halt. By Don Quijones.
It’s not just the weather that’s heating up in Spain’s second city. Read… Chaos Hits Barcelona’s Tourist Industry
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