Disasters put holidays on hold

Visitor numbers are set to shrink. Photo / Brett Phibbs

Earthquakes and higher airfares and exchange rates mean tourist numbers will fall this year for just the second time in a decade, says Goldman Sachs.

The investment bank said its tourism forecast review had taken into account events in Christchurch and Japan, higher international airfares, modestly weaker local household consumption growth and a higher dollar.

Goldman Sachs expected visitor arrivals to shrink by 0.3 per cent for the year ending June, compared to a previous forecast for growth of 1.1 per cent.

Goldman Sachs economist Philip Borkin said analysis of other major disasters suggested there was no standard template for the impact of events on visitor arrivals.

"However, what does appear to be common across the majority of the events is that any impact is relatively short-lived," Borkin said.

According to Statistics New Zealand, overseas visitor arrivals totalled 2.5 million for the year ended January, up 2.5 per cent on the previous year.

Goldman Sachs assumed seasonally adjusted visitor arrivals would fall 10 per cent in the three months ending June versus the quarter ended March.

"This is a similar magnitude of reduction experienced in New Zealand after the September 11 terrorist attacks and the outbreak of Sars," Borkin said.

Arrivals in the year to January 2009 dropped by 0.9 per cent as swine flu caused Asian tourists to stay home.

"That's really the immediate shock and awe type reaction to the earthquake and obviously the Japanese earthquake has come at the same time so that will have negative influence as well."

Japanese visitor numbers were expected to fall about 40 per cent during the next few months, he said.

"One thing in our favour is that we're not as reliant on the Japanese economy as we once were."

Visitor number growth was predicted to rebound to 5.6 per cent in the 2012 year, compared to the previous expectation of 6.1 per cent.

Arrivals were predicted to rebound in the third quarter and return to pre-quake level by the end of the year, excluding Rugby World Cup arrivals.

The Rugby World Cup, solid source country GDP growth and new airline capacity supported future arrivals growth, Borkin said.

"This is offset by a persistently high New Zealand dollar against most crosses - and higher than at the time of our previous forecast review - with the exception of the Australian dollar."

New Zealand resident departure growth had been robust, which was at odds with a weak domestic retailing environment, Borkin said.

"It's only at the margin, it's not the biggest driver but it just contributes to that story that while income growth has been improving in a relative sense more of it's being spent offshore at the moment than at domestic retailers."

One of the key assumptions within Goldman Sachs' wider economic forecasts was the process of household deleveraging had further to run, Borkin said.

"Despite our expectation of strong household disposable income growth, we forecast household consumption, particularly across discretionary areas, to be subdued," he said.

"While the New Zealand dollar will remain elevated, we also expect this theme to slow resident departure growth, with higher international airfares also acting as a headwind."

Tourism Industry Association chief executive Tim Cossar said it had been a tough market anyway.

"[Operators] certainly realise it's got short-term implications and certainly it's a bit of a thud for the industry," Cossar said.

"It's not helpful in a tough market but it's a reality that we just have to deal with and I think by and large the industry is dealing with that but for some businesses that hurts."

According to the Ministry of Economic Development, spending by international tourists in the year ended December dropped $619 million to $5.6 billion.

Confidence in the domestic tourism market had been knocked around a little, Cossar said.

"That had been a market feature before the earthquake but certainly since.

"I've been getting more comment that the domestic market really squeezed up at that point."