Greece’s resilience to the Covid-19 shock is a result of a strong tourism industry, according to credit agency Moody’s, which said that the recovering sector will drive economic growth and fiscal adjustment in European countries that are highly dependent tourism.
According to Moody’s data, tourist arrivals marked a greater decrease in Cyprus (Ba1, stable outlook), Spain (Baa1, stable outlook), Greece (Ba3, stable outlook), and Malta (A2, negative outlook) due to their heavy reliance on foreign air arrivals.
By contrast, travel by car as well as domestic travel limited the decline to around 50 percent of the European average in Croatia (Ba1, fixed outlook), Portugal (Baa2, fixed outlook) and Italy (Baa3 , fixed outlook).
With the exception of Cyprus, these seven countries also suffered the largest economic blow in Europe due to Covid-19 restrictions, while some recorded the largest increase in debt-to-GDP ratios in 2020.
At the same time however, Moody’s analysts point out that credit profiles remained resilient. The agency upgraded Croatia, Greece, Cyprus and Portugal, and confirmed the “stable” rating and outlook for Italy and Spain.
The agency goes on to stress however that Greece, Portugal, Malta, Spain, Cyprus, Croatia and Italy as well as Iceland and Montenegro are still not out of deep waters. They are still most exposed to risks affecting Europe, including new virus mutations and vaccination reluctance which will inevitably lead to new restrictions and measures. This, Moody’s analysts say, can derail the recovery effort and lead to a further increase in already high debt levels.
Looking at Greece, Moody’s found the vaccination rate of the adult population and the willingness of Greek citizens to be vaccinated is at 73 percent.
As a tourist destination, Greece may be at higher risk particularly in view of the fact that 88 percent of those who travel to Greece do so by air; 7 percent by car; and 9 percent non-EU residents.
The report also found that tourism enterprises in Europe are now not as resilient to shock, particularly after a weak year.
Despite the significant financial support granted, the pandemic has eaten away at the liquidity “cushions” of small and medium-sized enterprises and the mild recovery this year is unlikely to help them “rebuild” their financial status, said Moody’s.
The credit agency suggests effective use of recovery funds so that countries can adapt to changing tourism demands and restrict vulnerability from overreliance on the industry.