While a lower Australian dollar may be spoiling plans for a lavish overseas adventure, it does present a silver lining for Australia’s economy – it could help to boost local economic growth substantially in the years ahead.
That’s the view of UBS economists George Tharenou and Scott Haslem who, in a cracking Friday afternoon research note, suggest the lower dollar is helping to boost Australia’s tourism sector at a time when other areas of the economy are misfiring.
As a consequence of the currency depreciation they note growth in international departures has slowed to just 2% per annum since 2013, down from an average of 10% between 2003 to 2013, while growth in international arrivals has risen to 5% per annum, up from flat growth between 2005 to 2013. While booming Chinese visitor arrivals largely explains the increase, they suggest non-Chinese numbers have also picked up recently in response to the lower dollar.
With departure growth slowing quickly as arrival numbers accelerate they note that net overseas arrivals, overseas arrivals minus overseas departures, is now running at the highest level seen since the Sydney Olympics of 2000. As a result the pair estimate that net exports of tourism services are now at the highest level seen since 2011, equating to 0.25% of total Australian GDP.
The chart below the recent trend in net visitor arrivals.
Should the Australian dollar continue to decline as many are suggesting, they estimate the economic benefits for Australia could be even greater.
“Looking ahead, with the total direct + indirect tourism industry an estimated ~6% share of GDP & ~8% of jobs, we expect a lower AUD to see strong growth to contribute a solid (net) boost up to ½%pt y/y to GDP. This estimate includes direct net exports & the substitution of overseas consumption to the domestic economy, noting that tourism spending in Australia by Australian residents is ~3x the consumption by foreigners in Australia (Figure 13). Meanwhile, with a lag, this should also lead to more employment & capex (albeit capex in accommodation & food services is only 0.2% of GDP, & retail trade is an additional 0.5% of GDP). Overall, for a sub-trend economy lacking domestic drivers, tourism is a bright spot, albeit only a partial offset to the (much larger) drags on overall GDP growth from combination of the (mining) capex cliff, fiscal consolidation & still over-valued AUD”.
For an economy growing below trend this would be a welcome development, particularly given subdued conditions are likely to persist for many years yo come. All that’s needed now is for the Australian dollar to resume its slide.
Yes, we’re looking at you, Janet!