Last summer, around this time, I did an interview with Ulf Lindahl, the managing director 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 lead to a deep economic recession.
He put forward an original idea: Global tourism could be at the center of the storm when it struck. “Everyone goes on vacation,” he said, “but that’s also what you can cut back on quickly – unlike your car or your phone.”
If people stopped traveling due to an unanticipated economic shock, he claimed, the effects would ricochet across almost every industry and business, from manufacturing to real estate, restaurants, luxury goods, financial services – you name it. All of this would risk triggering a series of business failures, high unemployment and a deep recession.
While many may have agreed with his thesis, no one could have predicted the Covid-19 pandemic. Now, the collapse of global tourism linked to the coronavirus, which represents more than 10% of global economic production, according to the World Travel and Tourism Council, could well trigger the next stage of this crisis, in which we are passing from an emergency. from public health and mass unemployment to widespread insolvencies in a myriad of industries.
Countries like Italy, Mexico and Spain, which have some of the highest levels of tourism as a share of gross domestic product, will be hit hardest by the fact that few people cross borders this summer. However, the United States, which just posted the largest post-war contraction in the second quarter, will likely be at the center of the larger economic storm.
Congress cannot agree on the next stimulus package and viral cases are on the rise. Nearly 17 million American jobs are at risk due to the tourism slowdown alone. Countless businesses can also be at risk. Even with billions of dollars in government assistance programs, US business bankruptcies rose 43% in June compared to the same month of 2019. It’s hard to imagine what will happen when the bailouts stop.