It is impossible to overstate the importance of tourism to Spain’s economy.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
When the hordes of tourists left Spanish beaches, resorts and cities at the end of August, there was a larger cull of local jobs than usual. Average social security affiliation fell during the month by 277,500 to 18.535 million people — a 1.47% drop. August is traditionally a poor month for the Spanish labor market, since at the end of it many summer jobs get axed in the tourism and retail sectors. This is one of the drawbacks when a national economy depends so heavily on tourism, which notoriously provides short-term, poorly paid jobs that tend to disappear the moment the tourists head home.
But this was the worst performance in a month of August since 2008, when 244,666 jobs (-1,26%) were lost, just as the global financial crisis was beginning to bite Spain.
And it is most unwelcome news in a country that still boasts one of the highest unemployment rates (15.3%) and youth unemployment rates (33.4%) in Europe, despite four consecutive years of robust economic growth.
In the last decade, every August has been negative for job creation. The smallest fall was registered in August of 2014 (-0.58%). Since then, the rate of job destruction in August has accelerated. In 2014, jobs fell by -0.78%; in 2016, by -0.80%; in 2017, by -0.97%, and this year by -1.07%, with the result that the number of people signing on for unemployment benefit in August rose by 47,000 to 3.182 million.
That’s still 200,000 fewer people than were on the dole in August 2017. And affiliation with social security in August was up 495,000 from August 2017, a year-over-year employment growth of 2.74%. So, it’s not all bad — outside tourism.
Over the past few years, Spain benefited from three main external tail-winds that have helped sustain its economic recovery: the rise of geopolitical risks affecting rival tourist destinations (Turkey, Tunisia and Egypt), the ECB’s expansionary monetary policy, and super-low oil prices. But these three factors are beginning to change direction. Tourists have been returning in droves to Turkey, Tunisia, and Egypt. The ECB has tapered its QE program and will stop it entirely later this year. And oil prices have risen.
On their own, each of these reversing trends is enough to cause problems for Spain’s economy. But if they all occur around the same time, as appears to be happening, they have the potential to bring the good times — which have been good to some, not so good to many others, in particular young workers — to a grinding halt.
The impact of the resurgence of much cheaper rival tourist destinations, such as Turkey, Tunisia and Egypt, is already being felt. In July, 4.9% fewer tourists came to Spain than in the same month of 2017. It’s the first drop in this key summer holiday month since 2009, when the number of international tourist arrivals declined by 4% globally in the wake of the global financial crisis.
Just as worrisome is the fact that the biggest falls were registered in the three biggest markets for Spanish tourism: the UK, France, and Germany. The number of Britons visiting in July fell by 5.6% to 2.2 million, with the weak pound making it more expensive to visit Eurozone nations like Spain. The number of French visitors shrank by 11.4% to 1.4 million, while just 1.3 million Germans visited Spain in July, 6.2% fewer than last year.
It is impossible to overstate the importance of tourism to Spain’s economy. It accounted for 15% of GDP in 2017, according to the World Travel and Tourism Council. It employs, directly or indirectly, 2.8 million people — roughly 15% of the total working population. That’s more than any other industry.
The tourist industry also played a vital role in Spain’s economic recovery, accounting for around a quarter of the new jobs created since 2013. The impact on Spain’s biggest tourist regions, such as Catalonia, the Canary Islands, and the Balearic Islands, has been even more pronounced, with over a third of the new jobs created there since 2013 depending on tourism.
But that process may be about to revert as Spain’s multi-year, job-creating mass-tourist boom begins to run out of steam. In Barcelona, one of the places most affected by the recent slowdown, partly due to last year’s terrorist attack as well as the ongoing political chaos in Catalonia, year-on-year occupancy rates in the city’s hotels are down virtually every month this year. Revenues in the sector fell by as much as 10% in July compared to the same month last year, according to one industry group.
Hoteliers have also bewailed that tourists are not just arriving in fewer numbers, they’re also spending less on a per-capita basis. And that is hurting retailers and restaurateurs as well, some of whom claim that their revenues are down by as much as 30% this summer. “This is the worst summer in 15 years,” says Gabriel Jené, president of Barcelona Oberta, a Barcelona-based association of commercial interests.
Local residents whose jobs don’t depend directly on tourism are unlikely to be overly sympathetic. Many have been complaining for years about the toxic mix of externalities unfettered tourism brings in its wake, including sky-high prices and rents, overcrowding, noise, environmental degradation, overstretched public services and infrastructure, and the gradual formation of a mono-dimensional local economy. And as mentioned above, many of the jobs that mass-tourism creates are of the casual, low-paid variety that vanish into the ether the moment the tourists go home.
But be careful what you pray for: Without Spain’s recent massive boom in tourism, those jobs would not exist at all. If the current trend away from Spanish destinations towards cheaper destinations in North Africa and the Eastern Mediterranean accelerates, there could be far fewer jobs available when the next tourist season begins. With the Spanish economy’s three main tail winds turning into head winds and the country’s most important industry showing serious signs of strain, time may be running out for Spain’s five-year economic recovery. By Don Quijones.
Tourism gets complicated in Spain, when it comes to the concerns of local citizens and city councils. Read… Spain’s Competition Commission Just Made Airbnb’s Day
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