Tourism hit seen hurting Israeli economy less than neighbours, says S&P

A likely halt of foreign tourism in Israel due to the war with Hamas may have “minimal” impact on the country’s economy, ratings firm S&P Global said on Monday (Nov 6), although it could cause significant problems in Egypt, Jordan and Lebanon.

S&P estimated a 10 per cent-30 per cent drop in Egypt’s tourist revenues would cost the country 4 per cent-11 per cent of its foreign exchange reserves if the central bank opted to intervene, while in Lebanon it could deliver a 10 per cent GDP hit to an already-ravaged economy.

Last year, tourism contributed 26 per cent of Lebanon’s current account receipts, 21 per cent in Jordan, 12 per cent in Egypt and 3 per cent for Israel. During the “Arab Spring” in 2011, tourist arrivals dropped by 33 per cent in Egypt and by 20 per cent in Jordan, S&P noted.

Trouble in one country often has widespread impact as travel firms offer packages that take international tourists around all the region’s main historical and holy sites, which include Jerusalem, Petra in Jordan and Egypt’s pyramids.

S&P, which has already put Israel’s AA- rating on a “negative outlook” and downgraded Egypt’s by one notch to B- since the escalation of the conflict almost a month ago, also mapped out a scenario of a 70 per cent drop in tourism revenues.

That scale of plunge would be similar to one seen at height of the Covid-19 pandemic. It could cut Egypt and Jordan’s FX reserves by as much as 26.6 per cent and 22.2 per cent respectively and Jordan and Lebanon’s GDP by 8.5 per cent and 23 per cent respectively, S&P’s analysts said.

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They said the direct impact on Israel’s economy even from that size of slump was likely to be “minimal” because tourism accounts for less than 3 per cent of its current account receipts. As a result, a 70 per cent drop in tourism income would only be equivalent to about a 2 per cent loss to Israel’s FX reserves.

However, the analysts repeated the forecast included in last month’s rating, warning that Israel’s GDP was expected to drop by 5 per cent year-on-year in the fourth quarter of 2023 due to the war. That is likely to reduce full-year growth to 1.5 per cent and cut it to just 0.5 per cent in 2024. REUTERS