Southern Europe faces economic trap: Financial expert warns of tourism boom and possible long-term risks

Southern Europe faces economic trap: Financial expert warns of tourism boom and possible long-term risks

According to a report by www.merkur.de,

Tourism in southern Europe is still booming, says a new analysis. Italy in particular is at risk of falling into an economic trap. During the corona pandemic, tourist numbers in Europe plummeted. But in 2023, the industry recovered and the numbers even exceeded pre-pandemic levels. However, according to a current analysis, this is probably a short-term development. Italy in particular faces major long-term problems. The Mediterranean countries benefited particularly greatly from the post-Corona desire to travel. This emerges from a current analysis by the international credit insurer Coface. Accordingly, southern Europe has developed from a problem into a driving force. In 2021, 2022 and 2023, Italy, Spain, Portugal and Greece contributed between a quarter and half of the EU's annual growth.

Impact on the market and the financial industry

Although the tourism industry in southern Europe has contributed to a short-term increase in gross domestic product (GDP), the analysis paints a bleak picture for long-term developments. Dependence on tourism in Southern Europe poses financial, social and political risks that threaten the long-term stability of the economy. Inflation is making it difficult for southern Europe to remain cost competitive with up-and-coming destinations in emerging markets. In addition, climate change has a particular impact on the southern European regions, which regularly experience natural disasters such as heat or forest fires.

Dependence on the tourism sector also has disadvantages in terms of productivity. The analysis shows that work in the tourism sector is characterized by workers with little training and precarious working conditions. The industry hardly creates any incentives to become more competitive outside of tourism. A possible consequence is that Italy, Spain, Greece and Portugal could fall behind in the long term.

Italy is particularly at risk in terms of productivity, as the working population could shrink by 11.7 percent by 2040. This could almost halve GDP growth potential and threaten the sustainability of public finances. Integrating women into the workforce could be a solution to boost productivity growth and meet household obligations, according to the analysis.

Overall, southern Europe is facing major challenges that could have long-term effects on the market and the financial sector. The dependence on the tourism sector and the risks in terms of productivity and demographic development could jeopardize the economic stability of the region.