What are the trends for international tourism in Spain in 2024? A sensitivity analysis based on macroeconomic factors

In this article we analyse the main factors that determine the evolution of international tourism in Spain. We have used a multiple regression model in which the dependent variable is the number of tourists from the main residence countries for Spain’s inbound tourism (UK, France, Germany, Italy and the US). The independent variables include the gross disposable income of households in the countries of origin, a geopolitical risk index, the exchange rate of the euro against other major currencies and inflation (both in Spain and in the countries of origin).²

The real gross disposable income of international tourists

The main factor behind the growth of international tourism in Spain is the situation of real income in the home countries of its inbound tourism. The chart below shows the growth in the number of international tourists per country of origin for each point of real income growth in each country.³ Except for France, all coefficients are substantially above 1, a result that is consistent with the fact that international tourism in Spain is a luxury good; i.e. when income increases, tourism expenditure grows proportionally more than income.⁴ This points to a high growth potential for Spain’s tourism sector as household income increases in the residence countries.

Geopolitical risk

One of the key factors in the success of Spain’s tourism sector is the high perception of safety and security offered by the country. According to the World Economic Forum’s Tourism Competitiveness Index, Spain scores 6 (out of a maximum of 7) in the pillar measuring safety and security,⁵ a significantly higher score than leading competitors such as Italy (5.5), Greece (5.4) and Türkiye (4.8), although somewhat lower than Portugal (6.3). We examine the trend in tourist arrivals in relation to two measures of geopolitical risk: an American index of geopolitical risk, used as a proxy (a measure that, being sufficiently close, represents the value of another in a calculation) for global geopolitical risk, and an index of geopolitical risk in Türkiye, used as a proxy for geopolitical risk in the eastern Mediterranean.⁶

Geopolitical risk perceived from the United States seems to have a negligible effect on international tourist arrivals to Spain. In fact, this index only has a statistically significant effect on arrivals from the US. In contrast, geopolitical instability in the Eastern Mediterranean seems to divert tourist flows to destinations perceived as safer, such as Spain. In particular, an increase in geopolitical risk in Türkiye leads to a statistically significant increase in the total flow of tourists to Spain, with particularly notable increases in American, British and French tourism.

Exchange rates

In general, we can expect a weak euro against foreign currencies to act as a tailwind for Spain’s international tourism as travel to Spain becomes more affordable for Britons and Americans, while travel to destinations outside the euro area becomes more expensive for European tourists. Since exchange rates tend to be quite volatile and long-term trends differ depending on the currency (for example, pound sterling depreciated against the euro between 2020 and 2022 while the US dollar fluctuated within a fairly stable range), we use a range of specifications to examine the behaviour of British, American and European tourists in the face of exchange rate fluctuations.

This analysis shows that, in general, growth in Spain’s international tourism slows down when the euro is strong. In particular, the exchange rates of the pound sterling and US dollar affect British tourism and US tourism, respectively. However, the strength of the euro against a basket of foreign currencies⁷ does not appear to significantly change the propensity of European tourists to travel to Spain and there is no indication that an appreciation of the euro leads to a reduction in tourism from euro area countries to Spain.

Inflation

Inflation, both in Spain and in the residence countries, appears to have a limited effect on tourist arrivals. Domestic inflation did not show any significant results either for total international tourism or for any of the main markets analysed. In contrast, inflation in the countries of origin seems to have a somewhat more negative effect on Spain’s inbound tourism. However, this relationship is only significant in the case of the United Kingdom.

Equipped with the estimated sensitivities of the different economic factors on the number of international tourists visiting Spain, and combining these with CaixaBank Research’s forecast scenario for the main economies, we can predict the number of international tourists visiting Spain in 2024. Specifically, we expect international arrivals to Spain to grow by 3.8%, a rate slightly higher than the 3.4% average over the past 20 years. Of particular note is the role played by the recovery in real disposable income in the main residence countries of Spain’s inbound tourists as the inflationary shock dissipates. Likewise, the greater security offered by Spain in a context of high geopolitical instability in Eastern Mediterranean countries and a certain appreciation of the euro expected in 2024 both support this forecast.

By country, in 2024 we expect tourist arrivals from the UK and the US to grow the fastest. The expected appreciation of the euro against the pound sterling and US dollar will be modest (according to CaixaBank Research the euro will rise from 1.07 dollars on average in 2023 to 1.12 in 2024, and from 0.87 pounds to 0.89). Moreover, the recovery in real disposable income and the security situation will support the flow of British and American tourists to Spain. It should be noted that, in the US, growth in real gross disposable income in 2023 was 1.2 pp above its historical average. Likewise, both the UK and the US are countries that have historically been sensitive to instability in the Eastern Mediterranean.

As for the Euro Area countries, we expect Italian, German and French tourism to post a somewhat weaker performance. French tourists are expected to perform best, with a predicted growth of 3.6%, boosted by increases in gross disposable income. Italian and German tourism will grow more slowly because of their declines in gross disposable income in 2023 and their lower estimated sensitivity to geopolitical risk in the eastern Mediterranean.