Abstract
1. Portugal is among the most tourism reliant countries in Europe. In 2019, the tourism sector accounted for around 15 percent of GDP and 18 percent of employment2 Tourism exports represent nearly 20 percent of total exports, significantly more than in other European countries (Figure 1). The indirect impact of the tourism sector on the economy, through linkages with up- and down-stream industries is also sizeable.3 Using Portugal’s input-output tables and the Leontief inverse matrix, a simulation of a one percent shock to tourism-related sectors,4 which propagates within the same period through these sectors to their direct and indirect suppliers, is estimated to induce about 0.4 percent change in the aggregate output.
Developments and Prospects for the Tourism Sector in Portugal?1
A. Pre-Pandemic View
1. Portugal is among the most tourism reliant countries in Europe. In 2019, the tourism sector accounted for around 15 percent of GDP and 18 percent of employment2 Tourism exports represent nearly 20 percent of total exports, significantly more than in other European countries (Figure 1). The indirect impact of the tourism sector on the economy, through linkages with up- and down-stream industries is also sizeable.3 Using Portugal’s input-output tables and the Leontief inverse matrix, a simulation of a one percent shock to tourism-related sectors,4 which propagates within the same period through these sectors to their direct and indirect suppliers, is estimated to induce about 0.4 percent change in the aggregate output.
2. In line with an increase in global tourism, foreign tourist arrivals in Portugal have been steadily growing since 2000. Tourist arrivals increased by about 1/3 between 2000 and 2010. The trend accelerated after, with the number of international tourists almost doubling between 2010 and 2019. In 2019, Portugal attracted nearly 25m international tourists―about 16 percent of the global total―and was the 15th most visited country in the world.5 Tourism exports rose from 15 percent of total exports in 2014 to 19 percent in 2018, significantly contributing to Portugal’s recovery from the global financial and EA sovereign debt crises. This increase reflected both, improved competitiveness, but also a diversion of tourism from neighboring regions with political instability.6
3. The sources of tourist arrivals have also expanded over time. Despite being a destination for primarily European tourists, more recently, Portugal attracted more non-European tourists―especially from the United States and China. While tourism is highly reliant on foreign tourists, domestic tourists have been playing an important role, accounting for almost 30 percent of all tourists in 2019, though traditionally they spend less than international tourists.7
Macroeconomic Relevance of the Tourism Sector in Portugal
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Macroeconomic Relevance of the Tourism Sector in Portugal
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Macroeconomic Relevance of the Tourism Sector in Portugal
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
4. However, despite its recent success, the tourism sector faced some important challenges even before the pandemic. The sector is disproportionately represented by small and micro firms that are typically more vulnerable to economic shocks. These firms account for close to 90 percent of all firms in the tourism sector and at least one-fifth of the total turnover. Relatedly, the sector hires a larger share of low-skilled workers and those with temporary contracts. As a result, productivity levels in this sector are lower compared to the rest of the economy. Partly reflecting these factors, firms in the tourism sector entered the crisis with weaker balance sheets compared to the rest of the NFC. Also, the disproportionate effect of the Covid-19 shock on this sector has imposed greater balance-sheet strains (Selected Issues Paper I) and related hardships on their workers, exacerbating distributional challenges of the crisis.
Workers Characteristics by Age Groups
(Percentage of employees)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Workers Characteristics by Age Groups
(Percentage of employees)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Workers Characteristics by Age Groups
(Percentage of employees)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Pre-pandemic Corporate Financial Risk Indicators, 2019
(In percent of firms)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Source: Banco cle Portugal.Pre-pandemic Corporate Financial Risk Indicators, 2019
(In percent of firms)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Source: Banco cle Portugal.Pre-pandemic Corporate Financial Risk Indicators, 2019
(In percent of firms)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Source: Banco cle Portugal.B. The Effects of the Pandemic on Tourism8
5. Global travel restrictions and travel hesitancy severely impacted tourism since the outbreak of the pandemic in early 2020 (Figure 2). High reliance on air travel and an unprecedented collapse in tourist demand from Portugal’s major markets, e.g., Spain, the United Kingdom, France, and Germany resulted in nearly halted international travel to Portugal in April and May 2020.9, 10 Tourism improved slightly upon reopening of the economy in early summer but declined again with a resurgence of the virus in late summer that led to stricter restrictions. Overall, international tourist arrivals and tourism-related exports fell by 60 percent in 2020 compared to 2019. Global tourism suffered another setback at the beginning of 2021 as countries tightened travel restrictions and imposed mandatory quarantines in response to new virus strains. Overall, in 2021, international arrivals to Portugal were 45 percent below 2019 levels and GVA in tourism-related activities some 12 percent below the 2019 level (compared to total GDP about 4 percentage lower than the 2019 level).11
Impact of Covid-19 Pandemic
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Impact of Covid-19 Pandemic
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Impact of Covid-19 Pandemic
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
6. The wide range of measures to support the tourism sector alleviated some of the pressures on this sector. VAT tax rebate for catering, accommodation and culture supported demand in accommodation and food sectors. Job retention schemes like wage subsidies (for hours not worked) and income tax and social security deferrals to employees, employers, and self-employed protected jobs.12 Direct support for the small and micro businesses significantly helped in containing the liquidity and, to a limited extent, solvency pressures in this sector. As in other European countries, the government also approved a moratorium on bank loan repayments for hard-hit households and companies affected, which has been extended until end-September 2021. State-guaranteed credit lines were also provided for the hard-hit sectors (e.g., restaurants, travel agencies and tour operators). These measures helped reducing liquidity pressures significantly: the share of employment in illiquid firms in the tourism sector―measured by their employment―declined from 18 percent before the crisis to 16 percent in 2020, i.e., slightly below the pre-pandemic level. This compares with a counterfactual exercise that suggests that without supporting factors, mainly policy support measures, unemployment levels could have risen to 62 percent during the crisis in the absence of the measures (Selected Issues Paper I).
Tourism Exports
(Percent Change relative to the period in 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Source: Eurostat.Tourism Exports
(Percent Change relative to the period in 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Source: Eurostat.Tourism Exports
(Percent Change relative to the period in 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Source: Eurostat.C. What to Expect after the Pandemic?
7. The tourism industry faces an uncertain future given unprecedented uncertainties related to new infection waves, protracted containment measures and subdued travelers’ confidence. Conversely, lower travel restrictions, faster global vaccination rates, stronger recovery in Portugal’s main tourism-source countries, and introduction of digital identification tools may support consumer confidence and help with the normalization of international travel. Also, domestic tourists in Portugal can provide an additional offset against renewed global travel restrictions. 13
8. The IMF staff’s baseline forecast suggests a gradual recovery of the tourism sector to its 2019 GVA by end 2023.14 Based on the 2021 :Q3 data outturn, GVA in tourism is still some 7.1 percent below the 2019 level compared to total GDP which is only 2.4 percent below 2019 level. Similarly, employment (hours worked) in this sector is 2.5 percent (7.1 percent) below 2019 levels, compared to 1.0 percent above (2.4 percent below) 2019 levels for total employment (hours worked) implying that the recovery in this sector will lag behind the rest of the economy. If the recovery of the tourism sector is delayed by 3–4 quarters, this would shave off some 0.8 pp from staff’s baseline growth projections in 2022 and real GDP in 2023 could be about 1 percent lower than current projected path.
9. Similar to staff forecasts, most international organizations project tourism to recover to its 2019 level only by 2023–2024. According to the World Tourism Barometer (UNWTO, January 2022) international travel will continue resuming slowly in 2022 with a gradual reopening of borders, increased vaccination, and improved travelers’ confidence. Under this baseline scenario, international tourist arrivals will rebound mostly in the third quarter of 2022 and reach somewhere between 40 and 60 percent below the 2019 level at the end of the year and reach full recovery only in 2024 or later. Other studies (EUROCONTROL (October 2021), European Travel Commission (2021), Mckinsey (2021)) have reached comparable conclusions assuming tourism to recover in the course of 2023 and 2024
10. This gradual recovery would imply that the sector could suffer deeper scarring effects, measured by the shortfall in value-added relative to pre-crisis trends. The pandemic is likely to aggravate pre-crisis trends which were already expected to result in significant reallocation of workers across sectors and occupations (IMF 2022), due to factors such as digitalization and automation. A sectoral analysis (see IMF (2021a))15 suggests that the share of tourism in GVA would have been nearly 2 percentage points higher by 2026 if pre- pandemic trends had continued.16 Factoring in the impact of the pandemic and advance signals from financial markets, the analysis finds that the share of tourism in GVA would remain below its pre-pandemic level by about two percentage points over the medium-term (blue bar). Assuming the tourism sector recovers faster (e.g. by end 2023 as in staff’s baseline forecasts), the share of tourism sector in GVA would still remain below its 2019 level by about ½ percentage point in 2026 (red cross).
PRT: Changes in Sectoral GVA Share
(Percentage points, 2026, relative to 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: Fitch; Eurostat; Chapter 3 of Fall 2021 REO; and IMF staff calculationsPRT: Changes in Sectoral GVA Share
(Percentage points, 2026, relative to 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: Fitch; Eurostat; Chapter 3 of Fall 2021 REO; and IMF staff calculationsPRT: Changes in Sectoral GVA Share
(Percentage points, 2026, relative to 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: Fitch; Eurostat; Chapter 3 of Fall 2021 REO; and IMF staff calculations11. The multi-speed sectoral recovery in output will likely be associated with substantial reallocation of labor and other factors of production. Sector-specific estimates of the relationship between output and employment suggest that a sizable share of workers in contact-intensive services would need to be reallocated to other activities. Analysis by IMF (2021a)17 suggests that―relative to 2019―the share of employment in tourism may drop by almost 1 percentage point over the medium term. These changes to the employment share in a sector are driven by two factors (i) level changes (i.e., growth) of the own sector and other sectors; and (ii) the estimated sectoral output-employment relationship. The reallocation from tourism towards other sectors could be larger if changes in consumer and worker preferences lead to stronger-than-envisaged demand shocks and/or the pandemic accelerates pre-existing trends of automation and digitalization. The reallocation of labor from the tourism sector can be particularly challenging due to the sector’s high reliance on the low-skilled and young workers with limited prospects of finding a job in another sector. Conversely, if recent trends in labor reallocation to growing sectors, such as construction is maintained, the strains on the labor market could be much lower (see BdP October 2021 bulletin).
PRT: Changes in Sectoral GVA Share
(Percentage points, 2026, relative to 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: Fitch; Eurostat; Chapter 3 of Fall 2021 REO; and IMF staff calculationsPRT: Changes in Sectoral GVA Share
(Percentage points, 2026, relative to 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: Fitch; Eurostat; Chapter 3 of Fall 2021 REO; and IMF staff calculationsPRT: Changes in Sectoral GVA Share
(Percentage points, 2026, relative to 2019)
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: Fitch; Eurostat; Chapter 3 of Fall 2021 REO; and IMF staff calculationsD. Policy Conclusions
12. Given the economic importance of tourism in Portugal, targeted and time-bound support can play a role in shaping the future of the tourism sector. For viable small and micro firms, liquidity-type support, such as guaranteed loans or lending rate subsidies, etc. could mitigate long-term scarring (see also Ebeke and others, 2021). Efficient and timely bankruptcy proceedings for unviable firms would help limit the risk of a rising share of zombie firms while increased access to SME restructuring tools, with possible public support would help to avoid costly bankruptcies. Women, young people, and informal workers are groups that are more likely to be employed in micro or small tourism businesses. To protect the most vulnerable, near-term policy measures should ensure income replacement or wage subsidies as long as the tourism sector remains under stress because of pandemic-induced restrictions. The authorities are implementing many important measures to address these priorities (for example, solvency support programs under Resilience and Capitalization Fund), and it would be important to complete these in a timely manner. Other targeted measures to maintain traveler confidence and limiting uncertainty, such as providing clear information to travelers and businesses on the epidemiological criteria, would also help.
13. Medium-term policies need to be focused on further improving productivity and competitiveness. Based on the Travel and Tourism Competitiveness Index (WEF, 2019), Portugal scores among the best European tourist destinations. In terms of tourism sector infrastructure, Portugal ranks 1st globally thanks to exceptional hotel density, high ATM density (4th) and high-quality tourism infrastructure (5th). Portugal has also made progress in diversifying the source markets of tourism by increasing the share of non-EU tourist. Nonetheless, to strengthen the resilience of the tourism economy and ensure its inclusiveness, further improvements will need to focus on environmental sustainability, digital transformation, and productivity of this sector. Active labor market policies and structural reforms to provide incentives for training and education in companies is key to raising skills of workers more generally, including to strengthen their job prospects more generally in the context of potential resource reallocation needs. In this context, the authorities’ ambitious investment plans under the NGEU―including in skill building, digitalization and climate sustainability—are important elements to strengthen the resilience of the tourism sector and facilitate reallocation of resources in Portugal.
Travel and Tourism Competitiveness Index
(Score, 1 -7 (best))
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: World Economic Forum; and IMF staff calculations.Travel and Tourism Competitiveness Index
(Score, 1 -7 (best))
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: World Economic Forum; and IMF staff calculations.Travel and Tourism Competitiveness Index
(Score, 1 -7 (best))
Citation: IMF Staff Country Reports 2022, 204; 10.5089/9798400215070.002.A002
Sources: World Economic Forum; and IMF staff calculations.References
Banco de Portugal (2018), “Economic Bulletin”, December 2018.
Banco de Portugal (2020), “Economic Bulletin”, October 2020.
Banco de Portugal (2021), “Economic Bulletin”, October 2021.
EUROCONTROL (2020), “EUROCONTROL Five-Year Forecast 2020–2024”.
European Travel Commission (2021), “European Tourism 2021 – Trends & Prospects (Q3/2021)”.
International Monetary Fund (2021a) Regional Economic Outlook, Chapter 3. Multi-Speed Sectoral Recovery and Reallocation Potential.
International Monetary Fund(2021b), “Short-term working schemes – sectoral coverage”, mimeo.
International Monetary Fund(2022), “European Labor Markets and the Covid-19 Pandemic: Fallout and the Path Ahead”, forthcoming.
Manteu, C., Monteiro, N. and Sequeira , A. (2020), “The short short-term impact of the Covid-19 pandemic on Portuguese companies”, Banco de Portugal Occasional Paper.
Mckinsey (2021), “A travel boom is looming. But is the industry ready?”, July 2021.
Milesi-Ferretti, G. M., (2021), “The Travel Shock”, Hutchins Center Working Paper #74, August 2021.
OECD (2020), “Rebuilding tourism for the future”.
UNWTO (2022), “World Tourism Barometer”, January 2022.
WEF (2019), “The Travel & Tourism Competitiveness Report 2019”. World Economic Forum.
Prepared by Kamil Dybczak, La-Bhus Fah Jirasavetakul, Boyang Sun, and Jing Zhou (all EUR).
Total contribution by the tourism sector is defined as the GDP generated directly by travel and tourism sector plus its indirect and induced impacts.
For example, a purchase of intermediary goods and services produced by industries supplying the tourism sector.
The tourism-related sectors include the following NACE categories: Transportation and storage (S.24), Other business sector services (S.31), Accommodation and food (S.25), Arts, entertainment (S.35).
UNWTO Barometer, July 2021.
Banco de Portugal, December 2018 – Tourism exports: recent developments and future prospects.
The non-resident component determines two-thirds of the GVA of tourism and is expected to continue to be the main tourism determinant (Banco de Portugal, October 2020).
The analysis in this Selected Issues Paper pre-dates Russia’s invasion of Ukraine and does not include additional considerations of potentially negative spillovers from the war in Ukraine on tourism prospects.
See Banco de Portugal (October 2020) “The impact of the pandemic on the tourism sector” for further details.
Milesi Ferretti (2021) shows how the deviation of 2020 growth from its pre-Covid-19 forecast correlates with the share of tourism in GDP and concludes that tourism-dependent economies suffered a more severe shock.
Using the results of the Fast and Exceptional Enterprise Survey – Covid-19 (COVID-IREE), Manteu et al. (2020) analyze the short-term economic impact of the pandemic on economic sectors and the role support measures adopted by the authorities. The authors find out that accommodation and food services stand out as the most affected sector.
Banco de Portugal (October 2020) “The “simplified layoff”: impact on firms’ liquidity and employment” discusses the role of the policy measures during the pandemic and their impact across economic sectors.
While the share of domestic tourists increased from about 30 percent in 2019 to close to 60 percent in 2020 and 2021, and supported the sector through the pandemic, it is expected to decline to pre-pandemic level in 2022 and 2023.
The forecast of the tourism sector recovery is based on internal model calculations taking into account: (i) vaccination rates in domestic economy and main tourism source countries; (ii) domestic development of the pandemic (number of new cases and tests); (iii) degree of pandemic-related restrictions; and (iv) the profile of tourists (travel preferences, means of transportation, purpose of travel, type of accommodation, etc.). These projections do not have additional assumptions on the effects on tourism due to the war in Ukraine.
Annex 3.1. Expected Earnings and Sectoral GVA Growth Projection of the IMF(2021a) describes the methodology used to assess expected earnings and forecast gross value added (GVA) growth at the sectoral level.
During the pre-pandemic period, employment was increasing in the services sector, in particular in accommodation and food services. During the pandemic, employment increased mainly in construction and decreased in industry and services (Banco de Portugal, October 2021 – Sectoral reallocation of employment in the context of the pandemic).
Annex 3.2. Sectoral Employment Projections of the IMF(2021a) describes the methodology used to understand how sectoral employment could evolve in response to the expected divergence in gross value-added growth across sectors and how alternative scenarios for assessing labor reallocation needs are constructed.
