The current state and outlook for tourism in Spain: Strength and resilience

In 2023, tourism was one of the driving forces of the Spanish economy and exceeded the levels reached in 2019. Indicators published by the country’s National Statistics Institute (INE) reveal that real tourism demand exceeded the 2019 figure, supported by both the resilience of domestic tourism and the boost provided by international tourism. Overnight stays in tourist accommodation in the first 11 months of 2023 exceeded those of the same dates in 2019 by 1.9%. This figure is supported by a resilient domestic tourism which exceeded its 2019 figure by 5.5%, as well as by the revival in international tourism, only 0.2% below its 2019 figure.

The resilience displayed by tourism demand is noteworthy in a context of still high inflation. On average in 2023, there was a cumulative increase in tourism service prices of 17.5% compared to the average for 2019. Of particular note is the rise in the price of accommodation, up by 26.2% since 2019. All in all, inflation in tourism services moderated throughout 2023 (7.0% year-on-year in November compared with the annual peak of 10.4% in March) and moved away from the double-digit figures of the summer of 2022.

The recovery of tourism in real terms and high inflation pushed up nominal tourism expenditure, both domestic and international. In the first three quarters of 2023, domestic tourism expenditure was 22.2% higher than for the same period in 2019, while international tourism expenditure in the first 11 months of the year was 16.6% higher than for 2019.

Although growth in international tourist arrivals continued to be heterogeneous in terms of their countries of residence, 2023 resulted generally positive figures across the board. By region, there were spectacular results from tourism from the Americas, 20.7% up on the arrivals in 2019. Although more modest, the traditional markets also showed encouraging results. For instance, tourism from the European Union exceeded its 2019 levels by 4.3%. However, this figure is slightly weighed down by less positive data from countries that went through adverse macroeconomic conditions in 2023, such as the Nordic countries and Germany, posting levels that were 12.5% and 4% below 2019, respectively. In the case of the Nordic countries, it should be noted that the weakness of the Swedish krona and Norwegian krone played an important role in this poor performance.

British tourism, despite not recovering in 2023 as a whole (remaining 2.7% below its 2019 level), was still a source of encouraging news in the last few months of the year. Since autumn 2022, British arrivals had been stuck at levels between 5% and 10% below those of 2019 but, in the last quarter of 2023, these picked up and surpassed the 2019 figures. Given the importance of the British market for Spain’s tourism (the UK is the leading country of residence for foreign tourists to Spain), this is excellent news that improves the sector’s prospects.

The short-term outlook for tourism in Spain is influenced by three key factors: the full recovery of tourism after the pandemic, Spain’s high degree of geopolitical stability compared with its rival destinations, and the rise in disposable income in Spain and in the countries of residence of inbound tourists.

As we have shown, international tourism in Spain managed to complete its recovery in 2023 after the sharp drop that occurred as a result of the COVID-19 pandemic. As can be seen from the data provided by the United Nations World Tourism Organization, this is a remarkable feat since Spain is the second fastest recovering country among the top 10 recipients of international tourism, behind only Türkiye. This full recovery is an endorsement of the competitiveness of Spain’s tourism sector. On the other hand, it means that the lift to growth rates provided by the recovery to pre-pandemic levels has dissipated. It should also be noted that Spanish tourists have returned to travelling abroad more slowly than international tourists to Spain. Consequently, as Spanish tourists gradually get back to travelling abroad, the ‘end of pandemic’ effect will become a downside risk for domestic tourism in the short term.

This effect could still be felt in 2023, when the post-pandemic recovery pushed growth in tourism GDP to 6.9%, with the sector contributing significantly to Spain’s GDP growth. In the coming years, we expect growth rates in the tourism sector to normalise as the end-of-pandemic factor wears off.

Although this end-of-pandemic effect will no longer be a tailwind for Spain’s tourism sector, it still has two other key supporting factors in the short term. The first is the country’s geopolitical stability compared to some of its rival destinations. It should be noted that, during the last four months of 2023, there was increased instability and insecurity in the eastern Mediterranean region which, according to all indications, will last throughout 2024.Moreover, historically, geopolitical unrest in the Middle East has been detrimental to the main price-based competitors for Spanish tourism, such as Türkiye and Egypt. Therefore, we expect this continued geopolitical uncertainty to drive tourists from the Eastern Mediterranean to Spain.

The other tailwind for the Spanish tourism sector in the short term is the increase in gross disposable income both in Spain and in the main countries that are sources of inbound tourism. After two years in which gross disposable income has generally risen at a rate below inflation, the decline in inflation in 2023, which we expect to continue in both the euro aera and the UK in 2024, will help towards a gradual recovery in the purchasing power lost in recent years. Thus, although real GDP growth rates are expected to be weak again in both the euro area and the UK, we expect the recovery in real income to support growth in the tourism sector.

Short-term factors help us to determine whether growth in the near future will be above or below the long-term growth rate. But what factors determine the long-term growth of Spain’s tourism sector?

The main factor is that, as income rises, consumers allocate an increasing proportion of their income to tourism.¹ In other words, tourism can be considered a «luxury» good, since its consumption increases more than proportionally as income rises. This leads us to believe that the tourism sector has the potential to be a long-term driver of the Spanish economy, as the income level of households in the home countries of growth in inbound tourists increases. In this respect, growth of the middle classes in several countries is an important source of growth for Spain’s tourism sector. Moreover, in a world where social media presence is becoming increasingly important, activities that generate content on these channels, such as travelling, could benefit. This increases the likelihood that consumers will continue to allocate a growing proportion of their income to tourism in the medium term.

Another positive long-term factor for Spain’s tourism sector is the trend towards demand becoming less seasonal. Growth in the senior population and those without school-age children, together with the increased flexibility of some workers to telework and take holidays outside the high season, is helping to deseasonalise tourism in Spain. In 2023, the country posted year-on-year growth rates that were five times larger in the second and fourth quarters (7% and 7.6%) than in the third quarter (1.3%). Demographic trends (greater life expectancy, ageing population) and the consolidation of new ways of working suggest that we will continue to see stronger growth rates in the low season than in the high season. This would help to reduce the under-utilisation of tourism infrastructures in the low season and thereby help to increase the sector’s long-term growth rate, as well as improving the quality of employment in the sector (less seasonality).

However, while the income sensitivity of tourism expenditure and deseasonalisation are important factors that have the potential to increase tourism in the long term, the sector is facing a major risk: climate change. As we will see later in this report, climate change could undermine such growth and being prepared for this challenge will be key to the long-term prospects of Spain’s tourism sector.

Having weighed up the key factors for Spain’s tourism sector, the most likely scenario is that the positive trend for growth in the sector will continue in 2024. Although the tourism sector’s full post-pandemic recovery will normalise growth rates in the coming years, the upturn in purchasing power in Spain and Europe together with Spain’s greater geopolitical stability compared with competitor countries will help the tourism sector set new records in 2024. However, Europe’s fragile macroeconomic outlook and the recovery of Spanish tourism abroad will be factors that will limit the sector’s growth.

CaixaBank Research forecasts that the GDP of the tourism sector will grow by 2.5% in real terms in 2024, reaching a level 7.1% above 2019, after ending 2023 with a year-on-year growth of 6.9% and having exceeded the 2019 level by 4.5%.

As for domestic demand, we predict it will rise by 0.3% in 2024. This forecast is conservative in view of the growth in household disposable income projected for 2024 but we expect Spanish tourism to grow primarily abroad. In contrast, we believe that international arrivals will rise by 3.8% as a result of the geopolitical situation in the Middle East and the recovery of real wages in the residence countries of inbound tourists. Therefore, in 2024 we expect international tourism to remain the main driver of growth.

We also expect the growth in prices to ease, in line with the fall in headline inflation. This will moderate the growth rate of nominal tourism GDP to 6.1% in 2024, bringing nominal tourism GDP to 26.8% above its 2019 level. With these figures, tourism GDP will reach a relative share of 12.7% of the total GDP of the Spanish economy, 0.3 pp more than in 2019, according to our forecasts.