Pointing to risks associated with slower-than-expected economic growth in 2023, the Inter-American Development Bank (IDB) said policy makers for heavily tourism dependent economies in the region need to account for the possibility of a slowdown in travel demand.
The IDB in its Latin American and Caribbean Macroeconomic Report 2023 projected regional economic growth of just one percent this year, rising to a mere 1.9 percent in 2024 in best case scenarios.
However, accounting for negative scenarios in which there is prolonged inflation and a possible economic downturn in the United States as forewarned, that projection drops to -1.5 and -0.5 in 2023 and 2024 respectively.
This, the IDB said, is because of the uncertain demand in tourism from advanced economies that may emerge as the global economic outlook remains fragile despite recent improvements.
“The increasingly uncertain and challenging global economic outlook casts a shadow on advanced economy demand for travel and tourism over the next 12 to 24 months. The latest survey of the UNWTO’s Panel of Tourism Experts highlights that while industry participants remain optimistic about the sector’s global prospects in 2023, confidence dampened somewhat over the last quarter of 2022, in line with deteriorating economic conditions,” the report notes.
“Regardless of outcomes, both regional and global economies face headwinds and the prospects for travel and tourism demand are not likely to improve. Policymakers from tourism-dependent economies should prepare to address concerns emanating from this crucial sector, which is again vulnerable to rapidly evolving external forces.”
The IDB noted that many Latin American and Caribbean countries rank among the most dependent on tourism, with The Bahamas topping the Tourism Dependency Index (TDI), based on the relative contribution of the sector to gross domestic product (GDP), exports, and employment.
“The TDI ranks 175 countries globally across all regions and finds that about half of the 20 most tourism-intensive economies on earth are in the Caribbean. While these Caribbean economies tend to be relatively small in size and population, tourism is significant for some of the largest countries as well,” the report states.
It continues, “Tourism-dependent economies suffered more than others during the pandemic given the travel restrictions and have not fully recovered. Given the uncertain demand conditions for tourism, especially from advanced economies, they may once again be particularly impacted.”
Global economic growth is projected to be 2.6 percent in 2023, down from the 3.2 percent seen in 2022.
