June 2020 Economic and Financial Review

June 2020 Economic and Financial Review DOMESTIC EONOMIC DEVELOPMENTS BOX 1: TOURISM IN THE ECCU: AN ESTIMATED TIME TO RECOV RY A IDST COVID-19

Covid-19, the first pandemic caused by a coronavirus, triggered border closures and the swift implementation of travel restrictions at a global level, as this was seen as one of the most effective responses to contain the spread of the virus. As a consequence, airlines and cruise companies limited their operations and consumer sentiment for travel significantly declined. Most ECCU member countries responded accordingly, with border closures in conjunction with domestic lockdowns, declaration of state of emergencies and daily curfews. The immediate consequence of these necessary policies in the ECCU was a sudden halt in tourism activity. Given the significance of tourism to overall economic activity and livelihoods (table A), the ECCB assessed the impact of the COVID-19 pandemic on tourism in the currency union, and the consequent effects on the fiscal and external sectors. Most importantly, the ECCB estimated the time at which tourist arrivals is likely to return to pre-pandemic (2019) levels.

13 While recovery times varied by country (table B), by the first quarter of 2024 all markets are expected to revert to pre- pandemic levels. However, the pace of the recovery hinges on the containment of the coronavirus in source markets along with a return of buoyant economic activity. In order to limit and contain the effects of the covid-19 pandemic and lessen the time to recovery the following recommendations are proposed:  Establish an efficient and clear communication strategy, which outlines all travel and health protocols and forms part of the tourism marketing strategy to target low risks source markets.  Target wealthy individuals who are seeking to buy access to COVID-19 safe havens.  Launch a collaborative campaign, utilizing social media and data analytics to target remote workers and students  Urgently resume regional travel against the backdrop of minimal COVID-19 cases in the ECCU and other CARICOM countries to fill the void that is left by the absence of international tourists.  Greater digitization of tourism services and leverage of smaller cruise vessels  Continue to support the most vulnerable members of society especially those in the tourism industry (hotel workers, vendors and taxi operators) through well target social programmes and income support. For the first half of 2020, member governments recorded a n aggregated decline of 16 per cent in tax revenue, hence a larger fiscal deficit is anticipated in 2020. On the external accounts, a current deficit of 20.0 per cent of GDP (EC$3.2b) is projected for 2020 and given its adjustment role, the shock to the central bank’s reserves could average EC$894.1m. Given tourism’s contribution to GDP (table A), and the projected 67.7 per cent contraction in the industry, ECCU’s GDP is forecasted to contract in the range of 10.0 to 20.0 per cent for 2020. To determine the length of time it would take for tourist arrivals to revert to 2019 levels, an error correction model in the form of an autoregressive distributed lag (ARDL) was utilized. Using the error correction mechanism as a benchmark for how quickly the tourism industry recoups after a shock, it is expected that the ECCU tourism industry would be back to normal by the end 2023 or the first quarter of 2024 for all member countries. Underpinning those projections are:  Full reopening and return of international flights and cruise ship calls by the fourth quarter of 2020.  AV-shaped economic recovery in main source markets and unemployment levels return to the 2019 baseline by end of 2021.  There are no further disruptions to the industry, such as hurricanes, terrorism shocks and wars.