Tourism competes with dairying as New Zealand's largest export earner making it an important industry when assessing economic growth prospects among other things.
This Raving looks at tourism from several perspectives including an overview of what is driving the latest boom in foreign visitor arrivals, introducing the concept of net tourism that paints a different picture of the impact of the tourism industry on economic growth and a look at economic multiplier effects set in motion by the latest tourism boom.
Drivers of the latest boom in foreign visitor arrival numbers
Thanks to help from Lynne Tuxford, Partner at the Baldwin Boyle Group, the adjacent chart compares national milk production with tourist visitor arrivals back to 1990. The performance of the two has been remarkable similarly since 1990 although over the last three years growth in tourist visitor arrivals has been strong while there has been some downside in milk production.
Statistics NZ only provides a breakdown of visitor arrival numbers for eight major source markets with the annual numbers for seven of these plus all other source markets shown in the two charts below. The charts reveal the latest boom has been driven by increased numbers from China, Australia, the US and all other source markets although the Chinese numbers have grown little in the last year. The rest includes some of the strongly growing Asian markets like Vietnam and some of the traditional markets from which growth is likely to be relatively weak (e.g. some of the other European markets).
More detailed research I have done in the past on the drivers of global tourism show that it is impacted significantly by economic cycles. In that context, the adjacent chart that uses a weighted average of manufacturing purchasing manager surveys for the major economies as a leading indicator of GDP growth for the G20 major economies suggests that global tourism prospects should be in the process of improving. G20/global economic growth appears to be in the process of improving quite a bit based on the weighted average PMI survey. GDP growth won't necessarily improve as much as signalled by the combined manufacturing PMI survey based on the experience when G20/global growth last improved in 2013.
Past experience suggests that the strong growth in recent years will not continue indefinitely. Exactly what contributes to the next significant slowdown in growth and when it occurs I don't know. But on the other hand it seems reasonable to assume that until virtual tourism takes over from actual tourism, international tourism will remain a reasonably strong growth industry possibly aided by new generation planes that contribute to significantly faster travel times.
Net tourism paints quite a different picture at times
While most focus is normally on foreign visitor arrival numbers, just as important to the impact of international tourism on the New Zealand economy is what is happening to the number of NZ residents heading overseas for holidays and other reasons like business travel. The left chart shows foreign visitor arrival numbers and the numbers of NZ residents departing for short-term trips. In terms of the likes of consumer spending the important question is how many foreigners are in the country at any one time consuming versus how many local residents are spending money overseas. The black line in the right chart below shows annual net tourism (i.e. foreign visitor arrival numbers less NZ resident departure numbers). Net tourist numbers still show a moderate upward trend over time but are much more cyclical than foreign visitor arrival numbers meaning that international tourism has a more cyclical impact on domestic spending than suggested by the foreign visitor arrival numbers.
Recently, NZ residents holidaying overseas have been growing faster than foreign visitor arrivals meaning slightly lower net tourism. If this pattern continues it means that international tourism will go from providing a reasonably significant boost to growth in consumer spending to providing no boost. Based on past experience at some stage over the next few years there will be another major cyclical fall in net tourism numbers while it is possible the start of that fall may already be underway.
Some of the economic multiplier effects of the latest tourism boom
Even if the upturn in net tourism has ended, the positive economic multiplier effects set in motion by the latest tourism boom will make a positive contribution to economic growth for some time. However, tourism is a highly cyclical industry when we look at the likes of the occupancy rate and consents for hotels etc. At some stage it will be time to start focusing on the next cyclical downturn that will include negative economic multiplier effects including for the likes of hotel construction and tourism-related employment as will be covered in our pay-to view, monthly economic reports.