The tourism sector provides much stronger-than-initially-estimated support to the economy.
Tourism has increased strongly since 2011, showing notable resilience to the macroeconomic headwinds. The share of travel revenue in GDP, which is utilized as a simple measure of the direct contribution of international tourism to the economy, increased cumulatively by 2.1 pps to 7.6% of GDP in 2015 from 5.5% in 2011, with a direct support to GDP growth of 0.4% per year in 2011-2015.
NBG Research believes the direct impact of the tourism sector on GDP growth in recent years is significantly larger, as travel data based on surveys are becoming increasingly less reliable, due to the use of more sophisticated payment methods. NBG Research constructs a supply side measure of non-resident tourism services, which indicates that the value added of the sector increased by 3.5 pps of GDP between 2011 and 2015, 1.4 pps of GDP (and 62%) higher than the increase from the survey data, despite the fact that NBG's measure of tourism services (comprising only accommodation and food) is significantly narrower than that of travel revenue, and moreover, nets out operating costs. Indeed, value added per tourist increased by 57% during this period.
The increase in value added reflects higher output as well as lower production costs (intermediate expenditure). Specifically, output related to non-residents is estimated to increase by €5.9 bn in 2011-2015 (plus 74% cumulatively), and reflects, inter alia, the improving capacity of the domestic accommodation and food services sector to offer higher quality services as reflected in upgrades of the accommodation infrastructure, which is mainly related to investment initiated prior to the beginning of the crisis.
Profitability in the tourism sector has also increased notably in recent years, making the sector attractive for investment. Specifically, the share of labor compensation declined due to a significant wage adjustment in this sector by 24% since 2011 -- 2x times more than the economy average wage reduction of 12%.
Based on World Travel & Tourism Council (WTTC) long-term projections of the increase in tourism demand until 2023, it is estimated that about €5.5 bn of new investments (3.1% of 2015 GDP) in new hotel capacity and equipment will be needed in the years 2017-2023 to bring the projected occupancy in line with its 15-year average (83% in Q3). Note that without new investments, the occupancy rate would increase to 95% by 2018.
As a result of the higher demand -- and the increased capacity -- the combined contribution to GDP growth from new investment and value added generation is estimated at 1.3% per year in 2017-2023, more than double the average of the previous decade.
Τhe analysis also includes:
Overview of economic developments in Greece and key macroeconomic forecasts.