Fitch: Uneven Recovery For Emerging Market Tourism

• The recovery in tourism across emerging markets (EMs) remains very uneven due to government-imposed mobility restrictions and border closures.
• Major tourism markets in Asia, like Thailand and the Philippines, have only seen a very slow recovery in the number of daily flights. In contrast, the recovery has been stronger in Mexico, Turkey, the UAE (and to some degree) Chile and Saudi Arabia.
• While vaccination rates are important, the single largest factor that helps to determine the pace of the recovery in the tourism sector is the government’s willingness to open up to tourists.

The recovery in tourism across emerging markets (EMs) remains very uneven as a result of government-imposed mobility restrictions, both local and international. While many governments have loosened restrictions in recent months, tourism flows have not picked up as quickly as many of these economies would have liked.

While vaccination rates have risen in EMs, some of the vaccines used are less effective, and government restrictions remain in place. The chart below compares how important tourism is as a share of the economy, against the number of flights in the latest month available, relative to 2019 levels. Two key themes stand out.

First, Asian EMs that are heavily dependent on tourism have experienced a very slow recovery in the number of daily flights, suggesting that visitor numbers are still low (top left hand of chart). This is both due to the slightly slower vaccine rollout, as well as continued local and travel restrictions.

Second, tourism-dependent EMs elsewhere, such as Mexico, Turkey, the UAE (and, to some degree, Chile and Saudi Arabia), have seen a stronger recovery in the number of flights. Mexico’s outperformance is, in part, due to its proximity to the US as well as its lower levels of restrictions, as proxied by the stringency index. Mexico’s outperformance comes despite the fact that its vaccination rate is lower than many other EMs.

While vaccination rates are important, we think that the single largest factor determining the pace of the tourism sector’s recovery is local governments’ willingness to open up to tourists. UNWTO data from June showed large differences in travel restrictions across the various regions; 70% of all destinations in Asia and the Pacific were completely closed, compared with less than a third elsewhere (see chart below).

Indeed, over the past quarters, Mexico has generally remained one of the most open countries to tourists (particularly Americans), and this has helped to support its external sector. In contrast, Thailand has only just re-opened its borders to fully vaccinated travellers from various countries in early November and the Philippines government is yet to re-open its borders.