18 January 1998 • The Decline in the Tourism Surplus • Egon Smeral

For many years the export surplus for tourism was a major factor contributing to balancing the current account. During the last few years, however, the structural weaknesses of Austria's tourism sector as well as the appreciation of the schilling have had a negative impact on the balance for travel services, mostly on the export side. The trend decline has been amplified by the globalization process.

Since the record high of 1991 (ATS 70.9 billion or 31/2 percent of GDP), the surplus in the balance for travel services dropped by ATS 50 billion to an estimated ATS 17 billion in 1997 (3/4 percent of GDP).

About 75 percent of the deterioration in the travel account since 1991 are due to the decline in exports and only one fourth to the rise in imports of travel services. Calculations on the basis of a world tourism model indicate that about three fourths of the decline in export earnings are the result of structural deficits and that one fourth is the result of the deterioration in the price-determined competitive position. On the import side, structural effects are somewhat weaker but still account for almost 60 percent of the additional rise in spending on foreign travel; the remainder can be interpreted as the results of the drop in relative prices of foreign travel.

The decline in relative prices of foreign travel mainly reflects cheap air travel arrangements and the decrease in relative (weighted) costs of living. The fall in relative costs of living in the destination countries stimulates not only foreign travel but also direct merchandise imports.

In a similar way the structural effect comprises, in addition to the structural effects of the tourism sector, the effects of Austria's accession to the EU and of the opening of the East, both of which caused a temporary surge in direct merchandise imports. The rise in tourism imports can be largely attributed to higher travel activity by Austrians abroad. Only about 10 to 20 percent may be due to an increase in cross-border purchases.

Austria's tourism sector has a fair chance of emerging from the present slump if the structure of touristic supply is improved substantially in the near future, and if the marketing and sales strategies are thoroughly restructured.

An appropriate package of measures to boost tourism should enable Austria, even though it is now a highly industrialized country, to earn an export surplus of 1/2 to 1 percent of GDP. If the statistics are adjusted for cross-border purchases (which should not be recorded in the tourism balance), the contribution of the tourism industry to balancing the current account is above average in an international comparison; the performance of Austria's tourism industry is all the more remarkable considering that Austria's high social and economic development tends to put production forms with a high share of personal services at a disadvantage.