Examine the effects of the global recession on
countries with well-established tourist industries
1 Sudden significant reductions in the export of tourism therefore worsening the current account position.
2 Increased unemployment because the demand in the tourism industry will reduce as
consumer confidence falls and less people are willing to go on holiday (negative multiplier
effect). The government will therefore have to pay more in benefits as more people will be
3 Fall in national income; This will have the effect of increasing the budget deficit since government will
have to borrow more in order to spend on the economy and if it is following the golden rule, then the
government will have to borrow more money to invest in the economy and not fund public spending.
Increase debt as a percentage of GDP because GDP falls and spending increases (increased borrowing).
4 Reduced foreign exchange reserves and reduced investment. Less foreign money is injected into the economy
5.1 It depends on the proportion of tourism of GDP. If tourism makes up a high proportion of
GDP then that country will experience significant losses in national income for example
developing countries like St. Lucia who are currently trying to promote the 'pro-poor tourism'
project that will focus on increasing the benefits experienced by the local economy. For
example working with local communities to create employment rather than limiting the
benefits to the just the all inclusive hotels. This however will increase the negative impact on
the economy since the whole economy will feel the effects of the global recession rather than
just the hotels.
5.2 Different countries experience different effects
5.3 Depends on length of recession
5.4 It depends on the income elasticity of tourism. Tourism is income
elastic therefore there will be a more than proportionate decrease in
demand than income caused by the recession.