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Closed for business: Border restriction delivers mixed results

The ongoing closure of New Zealand’s borders to international travel is delivering both benefits and costs to the economy, says a recent report from IBISWorld, a industry market research company.

While the border closure is critical to prevent a resurgence in the spread of COVID-19, the loss of tourism revenue and lack of access to imported foreign labourers is expected to contribute to a severe economic contraction in 2020-21.

‘Real GDP is expected to decline by 3.9 per cent this year, representing the first decline in this metric since the Global Financial Crisis of 2008-09,’ said IBISWorld senior industry analyst, Matthew Reeves.

There is currently no timeline for reopening the New Zealand border for international travel, with the Central Government taking a cautious approach.

A trans-Tasman travel bubble between New Zealand, Australia and other nations in the Pacific region has been proposed. However, following the second wave of COVID-19 that has affected Victoria this month, any travel bubble with Australia is expected to be postponed until at least Christmas.

Foreign tourists contributed $17.2 billion to the New Zealand economy in 2018-19. The total number of visitor days spent in New Zealand by international travellers declined by 7.7 per cent in 2019-20, and is expected to fall much further in 2020-21 as borders remain closed. Revenue in the tourism sector is expected to decline by at least 26.3 per cent this year.

"Around 230,000 people are directly employed in the tourism sector in New Zealand, accounting for more than 8 per cent of the country’s total workforce. Furthermore, tourism directly and indirectly accounts for almost 10 per cent of GDP," says Matthew.

Large hotel businesses such as Millennium & Copthorne are expected to face a significant impact from COVID-19, losing demand from business travellers.

Revenue in the hotels and resorts industry is expected to fall nearly 31 per cent in 2020-21, to total $1.1 billion.

In 2019-20, international leisure travellers accounted for 31.5 per cent of industry revenue. However, with borders still closed, this is expected to fall to under 10 per cent in the current year. Employment by hotels and resorts is expected to decline by 12.6 per cent in 2020-21, representing the loss of over 1,400 jobs in this industry alone.

"Compounding the loss of foreign tourism, domestic tourist visitor days are expected to fall by 14.2 per cent in 2020-21," says Matthew.

Although the border closure is harmful to some economic sectors, the benefit to the broader economy outweighs this cost.

"With New Zealand in a strong position to contain and manage the virus, industries such as motion picture and video production, cinemas, and gyms and fitness centres have benefited from a return to normal operations, whereas similar industries in countries such as Australia have continued to struggle," asys Matthew.

The redirection of outbound tourism to domestic attractions may also provide some relief for domestic tourism operators. New Zealanders traveling overseas spent approximately $9 billion dollars in 2018-19. Therefore, promoting domestic travel would significantly reduce the shortfall left by the current ban on international tourism to New Zealand.

Provided New Zealand keeps COVID-19 under control, the economy is forecast to rebound. As the local economy improves and travel restrictions on inbound tourists are eased, demand is projected to return. This is likely to start with a travel bubble with Australia and the Pacific Islands.

"Real GDP is forecast to grow at a robust compound annual rate of 2.5 per cent over the five years through 2025-26. This includes a rise of 3.6 per cent in 2021-22. Promising developments in the pursuit of a COVID-19 vaccine may allow New Zealand’s borders to reopen as soon as early 2021," says Matthew.

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