Exchange rate exodus

On Friday, the Australian Bureau of Statistics (ABS) released data on overseas short-term tourist arrivals and departures. Once again, it provided stark evidence that some of Australia’s domestic industries, in this case tourism and retail, are hurting badly from the high Australian dollar.

The below chart plots the monthly tourist arrivals and departures to/from Australia since 2000.

As you can see, the surging Australian dollar has prompted many Australians to holiday overseas. Although the number of departures overseas had already been growing steadily since 2003, departures popped in April 2011, increasing by almost 20% from the prior month and by 25% from the same time last year.

Meanwhile, tourist arrivals from overseas have remained relatively stable since the mid-2000s, discouraged by the high Australian dollar.

The annual data is equally stark. At the beginning of last decade, Australia received around 7 overseas visitors per year for every 5 Australians holidaying abroad. But now this ratio is no longer in Australia’s favour, with only around 4 overseas visitors holidaying in Australia in the year to April 2011 for every 5 Australians visiting abroad (see below chart).

Australia’s favourite overseas holiday destination is South East Asia (particularly Indonesia and Thailand), which received nearly one-third of Australian departures in April 2011. This was followed by Oceania (21%), the Americas (12%), North West Europe (11%) and North East Asia (10%).

By contrast, the majority of foreign visitors to Australia are from Oceania, which accounted for 22% of arrivals in April 2011. This was followed by North Western Europeans (21%), North East Asians (20%) and South East Asians (16%).

What it means:

With so many Australians choosing to holiday abroad instead of domestically, and the high currency discouraging foreigners from visiting Australia, Australia’s tourism industry is being hit hard. And the loss of tourism spending is extending to Australia’s retail sector, which is also suffering from increasing levels of online purchases from overseas websites.

As reported by Fairfax’s Tim Colebatch on Saturday:

Unreported bureau figures this week suggest that even before the April surge [of Australians holidaying abroad], more than a fifth of the growth in consumer spending in the March quarter was spent overseas by Australian tourists.

While the national accounts showed household spending up 3.4 per cent in the year to March, the detailed figures suggest the growth in household spending within Australia was only 2.8 per cent.

In the March quarter, consumer spending locally grew only 0.46 per cent. Yet in a year, net consumer spending overseas almost doubled, rising in real terms from $1.05 billion to $2 billion.

These figures exclude online purchasing from overseas websites, so actual growth in local spending was even lower.

The shift of consumer spending overseas is accelerating.

In a similar vein, recent research by Goldman Sachs estimates that the retail/tourism sectors are losing around $800 million in sales per month as a result of the current tourism deficit. This $800 million in lost sales is calculated by deducting Australian tourism spending offshore from international tourism spending in Australia.

With the Australian retail sector already facing significant headwinds from household disleveraging, stagnant to falling asset prices and population ageing, the loss of significant tourism dollars is another unwanted headache.

And with the Australian Treasury Secretary, Dr Martin Parkinson, predicting that the Australian dollar will remain at persistently high levels for some time as it tracks high commodity prices and the country’s strong terms of trade, the pain caused by the tourism deficit is likely to be ongoing.

Cheers Leith

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Unconventional Economist
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Comments

  1. “Meanwhile, tourist arrivals from overseas have remained relatively stable since the mid-2000s, discouraged by the high Australian dollar”

    I think this statement is a bit general. From memory, the AUD was down to 49c at one point in this period .

    Also, the exodus in Aussie tourists is obvious, but the figures don’t seem to show any significant drop off in incoming tourists.. (though from personal experience living on the Gold Coast I am aware that tourism is currently a very dead duck)

    • Phil, I think inbound tourist numbers are beginning to roll over as you can see here in this chart from the ABS.

      The trend estimates discussed in “‘What if’….? Future scenarios” suggests further weakening, and given the recent strength of the AUD, many inbound tourists would have been discouraged from booking holidays here.

      Remember also, that each tourist is spending less in AUD terms because their own currencies don’t buy as much here these days.

    • Deus Forex Machina

      guys thats the point isnt it…

      australians who also normally have their holidays here (gold goast, port stephens where I live) are going overseas so by definition the flow of traffic is reduced here at home…

      that’s dutch disease isn’t it

  2. The AUD has been above $US0.70 since late 2003, except for a brief period during the GFC. It has also been above $US0.80 since early 2007, again except for a brief period during the GFC.

    It is the high AUD that is principally responsible for the turn around in Australia’s tourism trade from surplus to deficit. And it is this deficit that is hurting the retail and tourist industry.

    • Tourism forgot the golden rule. Where are the customers getting their income from.

      Build it and they will come. Build it with unsustainable/unserviceable debt cost structures and they will come.

      They were relatively uncompetitive internationally with a weak AUD$.

  3. Hang on, Adam Carr said today:

    So the next time you see people referring to the struggling tourism and education export sector, note them down as liars and slap them.

    So should we believe Adam and go around slapping people or believe the data?

    Should Goldman Sachs alert their security that Adam Carr is on his way there to slap them?

  4. The departures are amazing. Sure, the dollar can account for it but I wonder if there isn’t also a demogrpahic force at work here. Just about every baby boomer semi-retiree I know is off the Europe at every oppotunity…

    • My parents have been to Europe every year for the past five years, as well as several other overseas trips each year.

        • Sandgroper Sceptic

          Anecdotal samples mean something. The Lorax my experience is the same my parents are in Europe now, my Aunt has just left, my partner’s parents are off to China and Asia soon. The figures are not wrong based on my anecdotal sample.

          As for SE Asia it has definitely supplanted the Margaret River destination for short trips (<7 days). The comments are similar, Asia is so much better value than "down south," when this is said by those who own their holiday mansion "down south" you know tourism spend in Margaret River must be dropping off a cliff.

          • I guess we could reverse sample. Are there any MB readers who don’t holiday more abroad than domestically compared to 3 or 5 years ago?

            My sample of friends and family definitely support the observation about retiring abby boomers travelling abroad with gusto.

  5. Adam Carr should be given some roid cream.

    Tourism in the FNQ has been kicked in the nuts. All I have to do is travel the main streets of Cairns and Port Douglas where the business operators will tell how bad their doing.

    Vacant CRE with for lease/sale signs abound.

    Its just not the AUD causing problems but the relative cost of holidaying in Australia.

    Service and accommodation standards are poor in comparison to other overseas destinations. In most cases its embarrassing.

    Cairns and Port Douglas are examples of business/investors that came in during boom boom time sucked it dry and put nothing back.

    • Certainly agree with what your saying.
      Cairns is like ghost town somedays, just can’t understand how places like DFO shops are still breathing.
      Regardless of how the tourism sector behaves in the future, we need to diversify fast.

  6. Oh well, the RBA has to increase interest rates. How else it can crash the price o financial assets?
    It has to slow all the economic activity in every other industry to make room for the ‘pending mining boom’. Too bad if you are not a miner yet. Same goes for the government’s fiscal policy – it has to just keep signing the mining permits and wait for the ‘river of gold to flow’.
    Is this absurd? No, not according to the esteemed market economists and treasury.

  7. hehehe….theres more police out in the street on a sat night than people. Everything 2 expensive, cant smoke, might as well stay at home and head off to asia.

    The Lucky Country, Thats all folks.

  8. Australian tourism the the victim of it’s own incompetence and greed. Give Aussies a reason to holiday in Australia at a competitive price and standard of service then things might be different.

    • Agreed. I spent 10 nights with the missus in Vietnam (Phu Quoc Island and Ho Chi Minh) in nice 4 and 4.5 star resort and hotels in late 2010.

      Flight and accommodation was around $2,000 all up per person.

      Just 10 nights in some good resort in Aus will alone cost $1,500 – 2000 for 10 days. Aussies do the math and vote with their feet accordingly.

  9. Demographics for sure!

    The days of towing caravans around Aus have come to an end with that particular generation moving into retirement homes or worse

    The next bunch want it easier, cheaper and with Europe a touch more glam!