Economics: Tourism and related branches extend gradual recovery but face new hurdles

MEXICO - Report 22 Nov 2021 by Mauricio Gonzalez and Francisco González

The most tourism-intense regions of the country and the economic sectors most dependent on the travel and hospitality business continue to mend, but at such a sluggish pace that remains far below pre-pandemic levels of activity. For roughly a decade, tourism served as a major catalyst of construction investment, considerably outpacing Gross Fixed Capital Formation in all other sectors of the Mexican economy. But since 2016 it has significantly lagged, and by 2019, as investors began to perceive heightened legal uncertainty and the government redirected its budget away from the sector and tourism-support infrastructure, that investment gap has widened considerably, a trend that should be clearly apparent when comprehensive data for the past two years is released.

It is difficult to exaggerate just how important this industry is to the entire economy – it acts as one of the main catalysts of employment and income in key sectors and regions and accounts for a considerable share of GDP in its own right. We estimate that for every additional peso in tourism expenditure, the global effect on the economy is 1.7 times. It is equally difficult to overstate the extent of the current industry crunch despite many months of recovery. By August of the current year, lodging service revenues were still running 20% below those of 2018 in a sign of just how far the current recovery has to go.

Mexico now faces serious challenges to becoming more competitive on a global level and sustaining the sector’s growth. Aside from the need for investment to enhance accessibility and the overall visitor experience, potential risks lurk on the level of major tourism destination decision-making determinants including security, a hurdle made all the steeper by continuing reports of violence. Perceptions of insecurity could have a considerable impact on tourism flows, especially at the level of average expenditure. The vulnerability of these and other variables leave the sector at risk of another relapse rather than a further extension of its slow recovery to date.

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