DBRS: Labor needs reallocation in economy after tourism slump

DBRS: Labor needs reallocation in economy after tourism slump

DBRS Morningstar has found that the Southern European economies such as Greece, Cyprus, Malta, Portugal, Spain and Italy are more vulnerable to the downturn in tourism, as measures to contain the spread of the coronavirus, including mobility restrictions and travel bans, have slashed tourism flows.

By contrast, Germany, Belgium, Finland, France and Slovakia are less vulnerable according to the rating agency’s selected metrics.

“The high reliance on the travel and tourism sector, and the spillover to the broader economies of the Southern European countries can contribute to an unequal recovery in the euro area even as economies continue to open up,” said Javier Rouillet, vice president at DBRS Morningstar.

The damage to the sector may be more severe for countries with higher reliance on foreign tourism, such as Greece and Cyprus.

The recent spike in virus cases in Europe dashed hopes for a strong summer season recovery and raises the uncertainty for the fourth quarter of the year.

“Depending on the evolution of the virus, prospects for next year may also be severely affected. Factors such as the business environment, transport and tourist service infrastructure, natural and cultural offerings, safety and security and price competitiveness could be important in facilitating the recovery in the tourism industry,” said Spyridoula Tzima, assistant vice president at DBRS Morningstar.

“The tourism sector could suffer more lasting damage, resulting in some business closures and more job losses. In this case, labor will likely need to be reallocated across the economy, increasing the importance of effective active labor market and training policies to help labour re-absorption,” added Rouillet.

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