Capital Economics Sees Tourism-driven Growth Surge in Greece in the Coming Years

Greece, Portugal, and Spain are projected to significantly outperform France and Germany in GDP growth in the coming years, driven by the robust tourism sector, according to a recent analysis by Capital Economics.

In contrast, Italy, another key player in the southern European market, is not expected to receive a similar boost. Tourism constitutes a smaller portion of Italy’s GDP, and its manufacturing sector is anticipated to face challenges due to the withdrawal of tax incentives.

“The robust growth in the tourism sector supports our view that the ‘regional’ economies will generally record strong growth in the coming years. Tourism is likely to add significantly to the GDP of southern economies, even if the number of tourists only increases in line with historical trends,” noted the analysts at Capital Economics.

The study highlights Spain, which is expected to derive 14 percent of its GDP this year from the tourism market, either directly or indirectly, according to data from the WTTC.

If the average annual increase in tourists visiting Spain remains at the historical average of 3.3 percent, it is estimated that this will contribute an additional 0.5 percent to Spain’s GDP this year.

Similarly, as Greece and Portugal attribute larger portions of their GDP to tourism, their total GDP this year could increase by a percentage greater than expected, surpassing even the 0.5 percent further acceleration anticipated for Spain.

Reasons behind tourism boom in Southern countries

According to the analysis by Capital Economics, tourism in the Eurozone is likely to continue growing at a substantial pace over the coming quarters due to rising real wages and increased capacity.

“This will be a particular boon to the southern economies, which we believe will continue to grow faster than the Eurozone average over the next couple of years,” stated the analysts.

Capital Economics further notes that with savings at historically high levels in the Eurozone, it is likely that as interest rates fall and consumer credit increases, the number of tourists will continue to rise.

It is worth noting that disposable income in the Eurozone is expected to increase this year at the highest rate since the introduction of the euro, and inflation is expected to decelerate, leading households to spend more on vacations.

The study also highlights that in certain tourist areas, particularly in Spain, there have been reactions against “overtourism”.

However, Capital Economics analysts believe that such reactions “will not impact the total number of tourists, as demand will create its own supply. Even if supply is limited in some destinations, tourists will circumvent this by choosing alternative destinations or accepting higher prices”.