New GDP Estimates: Tourism Destroyed Us, Tourism Saved Us

Will GDP plummet this year or just underperform? Will the dark predictions from a few months ago come true? If judging by the tourist season, there are reasons for optimism. The season and the tourism industry have proven to be more robust than expected, and projections of nearly double-digit GDP declines are now being modified. The decline seems to be smaller than anticipated, from 9.5% to approximately 6%.

The level of tourist overnight stays in the first seven months of this year was a encouraging 46.2% compared to the same period last year. It’s not much, but it’s uplifting, as we expected it to be at around 30%. For comparison, in the first six months of this year, tourist overnight stays were at 29.1% compared to the first half of last year.

– Given that August is still ongoing, and in July and August about 60% of total tourist overnight stays for the entire year are realized, the continuation of positive trends from the beginning of the main part of the tourist season would contribute to expectations of a milder GDP decline than previously forecasted – the government is cautious in its expectations and reminds that, according to previous projections from the Ministry of Finance, this year’s GDP decline would amount to 9.4%.

However, there are now reasons for optimism, as the GDP will be most affected by the decline in the value of exports of goods and services, primarily services, in which the structure of revenues from tourist services accounts for about 70%.

Optimistic Estimates

– Therefore, the tourist season, better than expected, will also impact overall economic activity. However, before the end of the main part of the tourist season, it is difficult to quantify the impact of new tourism data on the revision of GDP movements, as besides physical indicators of overnight stays, it is uncertain how much lower tourist spending will be given the unfavorable economic situation in our main emitting markets – they emphasized in the government, where, like many others, they await the estimate of GDP decline in the second quarter and new projections for next year, which will be published at the beginning of September.

At the Croatian National Bank (HNB), they are even more optimistic than the government. According to Vedran Šošić, the vice-governor of the HNB, the institution has simulated economic activity movements in less pessimistic scenarios than the baseline, according to which a GDP decline of 9.7% is expected this year. In doing so, better assumptions in tourism are taken into account, along with somewhat milder adverse effects of the epidemic on personal consumption and investments.

– In such scenarios, the economic decline would be about a third smaller than in the baseline scenario. This means it could be around 6.5%. On the other hand, there are also significant adverse risks that would materialize if the epidemiological situation worsens; the ‘damage’ in that case should not be as severe as from the first wave – said Šošić, adding that, regardless of the second wave of the pandemic, this year should likely be somewhat better than expected due to tourism.

Even if negative risks materialize in the second half of the year, the vice-governor added, their adverse effect could be more visible in indicators for the following year than for this one.

Thus, it turns out that our season is successful mainly due to those factors we could not influence. We are close enough to Central and Western Europe that tourists come to us by car, which is very important in deciding where and how to vacation amid the coronavirus pandemic, and we also have pronounced seasonality. Tourists mostly come to us in July, August, and September. While other Mediterranean destinations suffer because they depend on tourists who primarily arrive by plane, and there are no planes, and their season lasts all year, they are already in significant deficit. Thus, this year, it is becoming increasingly likely that we are the least affected destination in the Mediterranean. Moreover, the epidemiological situation, at least in July, worked in our favor; we opened up to tourists and have the right to at least celebrate a little.

What other economic analysts expect from GDP this year, who is optimistic, and who is pessimistic, read in the printed and digital edition of the weekly Lider.

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