Greek Business File, April-May 2020, No 125

By Kerin Hope


Travel and tourism are among the biggest victims in the Covid-19 crisis

Greece’s tourism industry will be hard hit by the coronavirus outbreak. With hotels closed until May, the start of the season has already been postponed. Hoteliers and tour operators hope that by late June visitor numbers will recover, opening the way for a last-minute wave of bookings by northern Europeans

Overall growth forecasts for 2020 have been slashed with the economy projected to slide into recession by mid-year. A bounce back in the second half is probable, provided the coronavirus epidemic retreats. Greece will also be allowed by its EU partners to undershoot its primary budget surplus target this year, while the country will benefit further from being included in the European Central Bank’s new programme for buying sovereign bonds issued by Eurozone member-states.

With seasonal hotels closed until April 30, Greek hoteliers have lost a significant injection of revenue from the Orthodox Easter holiday, which traditionally marks the start of the tourist season and has helped make Corfu and the Aegean islands enticing spring destinations for north European visitors.

Season could still be rescued

Most hoteliers report a cancellation rate of almost 100 per cent of bookings for May because of the coronavirus outbreak. The prevailing view at the time of writing was that the 2020 season could still be rescued if bookings recovered in the second half of June and occupancy rates stayed high through October, though some doubt that a V-shaped recovery is likely.

Greece had been expecting a modest uptick in visitor numbers this year thanks in part to a zero-sum game in Mediterranean tourism markets. Turkey’s volatile relationship with Russia and Syria was already affecting bookings for resorts along its southern coast, pushing tourists towards Greek destinations instead.

More Chinese tourists were set to visit high-end Greek destinations like Santorini and Mykonos following the start of regular scheduled flights between Beijing and Athens. Hoteliers looked forward to a further boost from domestic tourism, which has picked up following the country’s return to economic growth.

Sea tourism is also feeling the impact with cruise ships banned from calling at Greek ports, and yacht charters included in the current lockdown. The Greek islands are currently off -limits to visitors following a government decision that only island residents can use passenger ferry services. Aegean Airlines, the country’s largest carrier, has cancelled international flights until April 20th.

Investment in Greek tourism will go on

The ratings agency Standard & Poor’s warned that Greece, Cyprus and Portugal all face “considerable challenges from a sudden halt in tourist flows. While these economies are generally more diversified than other tourist destinations, the very significant pre-existing external financing needs would amplify the effect of a tourist shock.”

It adds: “Since tourism is also a labour-intensive sector, there would potentially be a big hit to employment levels in countries such as Spain and Greece, which are still posting high structural unemployment.”

Capital Economics says in a report published in mid-March that travel and tourism is “clearly one of the hardest hit sectors in the corona crisis.” It adds: “In a realistic scenario where travel dropped by 50 per cent for four or five months, annual global GDP growth would be reduced by 0.7 percentage points. Indirect effects, or disruption to domestic travel, could make the hit even harder.”

The impact will be powerful for medium-sized economies, like Greece, Portugal, Mexico and Thailand where tourism makes a relatively high contribution to national output.

While the coronavirus outbreak may delay several deals in the pipeline, it is unlikely to derail investment in Greek tourism by international operators in the medium term. A landmark last year involved Blackstone Real Estate Partners, part of the eponymous private equity group, which spent 179 million Euros on buying five properties owned by the Cypriot Louis group – two on Corfu, two on Zakynthos and one on Crete. Local and international investors are preparing to spend 1.6 billion Euros in the next five years developing new resort complexes around Greece.

Yet the central bank has already slashed its growth forecast for 2020 from 2.4 per cent to zero, citing the projected impact of the corona virus on Greek exports, global and regional supply chains, including travel and tourism, and financing conditions for Greek banks and businesses.

The Bank of Greece governor said on March 20 that the impact could immediately be accurately quantified due to a lack of available data and given that the pandemic was still unfolding. The most likely scenario would be a strong negative impact in the first two quarters this year, which would be partially off set in the final two quarters.

The decline in output would be driven by shrinking external demand for Greek goods and services, and reduced domestic demand for sectors such as transport, tourism and trade.

Fiscal stimulus measures taken

One government economist predicted that Greece would be able to regain in 2021 whatever growth is lost this year, and perhaps even more – partly as a result of fiscal stimulus measures adopted by the finance ministry.

Greece will provide up to 10 billion Euros in budget funding, unspent grants from EU structural funds and, at a later stage, loans from the European Investment Bank to support the economy and protect jobs. The fiscal stimulus will amount to an initial 2 billion Euros, to be split between emergency wage support for workers, plus temporary tax and loan relief for cash-strapped companies that avoid making workers redundant.

The country’s commitment to achieving a primary budget surplus – before making debt repayments – of 3.5 per cent of GDP will be overlooked this year following successive decisions by the EU to relax its fiscal rules. As a result Greece would be in line for significant larger benefits from a new fiscal support package for EU member-states prompted by the coronavirus crisis.

Waiver, at last

Greece is included in the European Central Bank’s new 750 billion Euro emergency bond-buying programme announced on March 18th., having been left out of the ECB’s earlier quantitative easing programme because its sovereign debt rating was half a dozen notches below investment grade.

The country is still rated three notches below investment grade by international ratings agencies, yet it was deemed to have made enough progress to receive a waiver from the ECB that allowed it to participate. The move will stabilize yields on Greece’s sovereign bonds and also result in extra liquidity for banks and the real economy.