Demand for hospitality-related services is triggering inflationary pressures in sectors critical to households. Billions in tourism also push up house prices.
New, strong inflationary pressures are expected to be generated by tourism, which is expected to set a new record this year. According to economists’ estimates, tourism in Greece is responsible for almost half of the economy’s inflation, as prices continue their upward trend despite the fall in energy costs over the last 12 months.
In particular, demand for hospitality-related services is triggering a series of chain price increases in critical household sectors such as food and housing, in a trend that is expected to continue into 2024.
“Data for 2023 shows that tourism directly accounts for about a third of inflation, as we see from categories such as ”restaurants- pastry-cafes-cafeterias-cafeterias” which has a large weighting in the price index. But if we calculate the indirect effects, the impact of tourism on prices is much higher,” an economist told Business Daily. “In the future, this effect may go up even more in the coming years or even recede,” he adds. “It depends on the context.“
While the economic benefits of tourism remain undeniable, the impact of the industry, and more specifically, of overtourism, is a concern. Pressures on the country’s infrastructure and the heavy strain on the natural environment are causing concern for many who also see demand from visitors driving up prices, weakening their own purchasing power.
The general trend on the price front is favourable, with official data showing that the Harmonised Index of Consumer Prices (HICP) fell significantly in 2023. From 7.3% in January it fell to 3.7% in December in a trend that masks many negative facts for households. In December prices in the food category increased by 8.9%, the second highest growth rate among the 27 EU countries after Malta, while prices of olive oil have increased by 58.5% and fruit and vegetables by 15% and 14% respectively.
A mixed picture is also expected for 2024, with demand from tourism offsetting the downward trends. According to the latest forecasts of both the European Commission and the Ministry of Finance, HICP is expected to hover around 2.6-2.8% this year. Analysts point out that “in 2024 we may see a price correction in the excesses of some products, such as olive oil, but in tourism services will continue to move upwards with a slowdown at best. There is no downside risk at all.”
Tourism will also push property prices even further upwards in a relationship that is now being quantified, according to new research. A study was carried out at the University of Evora in Portugal to determine the impact of tourism activities on house prices in 8 countries where economies are highly dependent on tourism, such as Portugal, Greece, Croatia and Iceland.
The main conclusion was that a 10% increase in real international tourism receipts, on average, increases house prices by up to 3.7%, depending on the country. If it is estimated that in 2024 in Greece the increase in arrivals will be higher than 10%, based on the leading indicators of scheduled airline seats and bookings, then property prices in the country will increase by about 3.7% due to tourism.
In the survey, the professors stress that “tourism activities are important for the development of local, regional and national economies and job creation. However, on the other hand, there is a fragile environment and social balance in tourist destinations that can easily be disturbed.” They continue: “problems can arise when the pressure on house prices is such that it creates serious social impacts in terms of affordability, quality of life for residents and displacement from their place of residence.“
The first indications for tourism in 2024 are very positive, making some talk of a new record. “Greece is heading for the highest performance of all time” for the 2024 tourist season, TUI tourism group’s Head of Communications, Aage Dunhaupt, recently told APE-MPE, pointing out that Crete, Rhodes and Kos remain top destinations for the company’s customers, which this year will start earlier than any other year in the summer season for Greece.
Asked about the mood of Germans to take a vacation amid a fiscal crisis and economic recession in their country, Mr. Dunhaupt replied that there is no reluctance or reluctance. “On the contrary“, he explained, “pre-bookings for the summer of 2024 are above the levels of 2019 (pre-pandemic)” and predicted “a good summer 2024 in the Mediterranean and especially in Greece“.