Last summer around this time, I did an interview with Ulf Lindahl, the chief executive of currency manager AG Bisset. At the time there was growing concern that the unwinding of the unprecedented corporate debt bubble created over the past decade could cause a sharp economic downturn. He put forth a novel idea – that global tourism might be at the centre of the storm when it struck. “Everyone goes on vacation”, he said, “but it’s also the thing that you can cut back on quickly unlike your car or your phone.”
If people did stop travelling because of some unforeseen economic shock, he posited, the effects would ricochet through nearly every industry and business, from manufacturing to real estate, restaurants, luxury goods, financial services – you name it. All this would risk setting off a raft of corporate insolvencies, high unemployment and a sharp downturn.
While many might have agreed with his thesis, nobody could have predicted the Covid-19 pandemic. Now the coronavirus-related collapse in world tourism, which represents more than 10 per cent of global economic output, according to the World Travel and Tourism Council, may well trigger the next stage of this crisis, in which we move from a public health emergency and mass unemployment to widespread insolvencies in myriad industries.
Countries such as Italy, Mexico and Spain, which have some of the highest levels of tourism as a proportion of gross domestic product, will be hardest hit by the fact that few people are travelling across borders this summer. However, the US, which has just posted the sharpest postwar contraction in the second quarter, will probably be at the centre of the broader economic storm.
Congress cannot agree on the next stimulus package, and viral cases are surging. Nearly 17m American jobs are at risk as a result of the tourism downturn alone. Countless companies may be threatened, too. Even with billions of dollars in government aid programmes, US commercial bankruptcies were up 43 per cent in June compared with the same month of 2019. It is hard to imagine what will happen when the bailouts stop coming.
At the top of this hierarchy of pain are companies such as Boeing and Airbus. With global airline traffic forecast to fall 60 per cent this year, the two major aircraft manufacturers are facing a flood of order cancellations just as trade tensions between Europe and the US