Economic Outlook for BC Tourism in 2023 and Beyond

By: Jock Finlayson

As the new year begins, it’s a good time to check on the state of the tourism industry, one of British Columbia’s biggest employers and a critical source of export earnings for the province. Both globally and in Canada, no industry was hit harder by the protracted COVID-19 pandemic and the sweeping public health measures adopted to stem the spread of the virus across the world. Here in BC, the pandemic’s toll on the industry—and the communities that rely on it—was dramatic, underscoring tourism’s large economic footprint in the province.

Tourism is Recovering

The good news is that tourism has been recovering, gradually, since the darkest days of 2020, when almost no one was venturing outside of their local communities. The data show a significant and steady increase in visitors coming to and traveling in BC, compared to 2020 and 2021. The table, from Destination BC, summarizes projected visitor numbers for 2022, as well as actual arrivals in 2019. The 2022 forecasts are based on data covering the first ten months of the year. The last column shows the estimated percentage change in overnight visitors for each market segment between 2019—the last pre-COVID year—and 2022.

                                                             Preliminary BC Visitation Forecast

Market                                               2019 Visitors                     2022 Forecast                   % change

US overnight                                           3,862,490                              1,969,000                        -49.0%

Asia-Pacific                                             1,186,057                                 348,000                        -70.0%

Europe                                                       735,473                                 426,000                        -42.1%

Total international                                   5,978,762                               2,881,000                        -51.8%

Canada overnight                                 13,968,000                             13,000,000                          -4.8%

BC*                                                         9,907,000                               9,446,000                          -4.7%

*Number of overnight stays by BC residents within the province.
Source: Destination BC

It is clear that international tourism is far from having “normalized,” whereas domestic visitors—from other provinces, plus British Columbians booking overnight stays within the province—have returned in droves and are almost back to their 2019 levels.  BC’s Asia-Pacific tourism markets remain notably depressed, judged against pre-COVID trends. There has been a stronger recovery in US and European visitor numbers, but these markets are also running well below where they were in 2019.

The continued weakness of international tourism takes on added significance because visitors from abroad pack a bigger “economic punch”—that is, they tend to spend more than their Canadian counterparts while they are here. Getting international tourist numbers back so they are closer to their 2019 benchmarks will be key to fostering a full recovery of the industry in the next 2-3 years.

The Macroeconomic Picture for 2023

What can BC tourism-related businesses expect in 2023? The macroeconomic picture is mixed. There are a few headwinds for the industry. One is the projected slowdown in global economic growth, including the possibility of at least shallow recessions in both North America and Europe this year. The World Bank forecasts that overall global economic growth will downshift from 3% in 2022 to only 1.7% in 2023. In normal circumstances, such a sluggish international economic backdrop would dampen tourism activity in BC. However, the Economist Intelligence Unit sees worldwide cross-border visitor numbers climbing by another 25-30% this year, as COVID fades further into the rear-view mirror and the pent-up demand to travel remains robust. That suggests the coming global economic slowdown may not have much impact on the province’s tourism sector.

Inflation Affecting Discretionary Spending

A second headwind is the nasty “inflation surprise” that hit most of the advanced economies in the second half of 2021 and extended throughout last year. Average annual inflation, as measured by the aggregate consumer price index (CPI), jumped to a multi-decade high of 6.8% in Canada in 2022. US inflation rose by even more. By comparison, the Bank of Canada’s inflation target is 2% per year, with actual Canadian inflation averaging very close to 2% in the 20 years before COVID. The sudden and unexpected surge in inflation coming out of the COVID shock has reduced the “real” or inflation-adjusted incomes of workers and households in Canada, the US and Europe. In the short term, strained household budgets will cause some individuals and families to cut back on discretionary spending, including travel, restaurant dining, and other leisure activities. Tourism is among the industries that will feel the pinch.

On the other hand, I expect the BC tourism industry will benefit from several other developments in the next 1-2 years.

Reasons for Optimism

First, in most parts of the world, many people are still keen to travel after enduring two-plus years of COVID-related restrictions.

“Larger-than-normal savings balances will enable many people to spend on travel.”

Second, in Canada and the US, significant numbers of households have substantial savings in place that were built up over the course of 2020-21. In Canada, for example, “excess” household savings reached roughly $300 billion as of mid-2021. These larger-than-normal savings balances will enable many people to spend on travel and other forms of leisure, even if the overall economy loses steam.

A third important positive is China’s re-opening. Before COVID, up to 150 million Chinese citizens were travelling outside of the country each year, spending US$250 billion in the process. This business virtually evaporated over the 2020-22 period. In the next year or two, much of it should return as tens of millions of Chinese nationals venture abroad again. Tourism in BC will certainly gain from the revival of Chinese outbound travel in the second half of 2023 and into 2024.

Finally, the relatively low value of the Canadian dollar when measured against the US currency as well as the Euro will create favourable conditions for the Canadian tourism industry. Most forecasters see the value of the Canadian Loonie staying well below US 80 cents in 2023-24. A competitive exchange rate not only draws in more foreign visitors—it also means many Canadians will choose to holiday and host business meetings, events, and conventions at home.

Add it all up, and there are reasons for optimism that the BC tourism industry is positioned for a continued rebound in activity in 2023-24—particularly in the case of international visitors. Before COVID disrupted life and business, tourism reliably ranked in the top 3-4 among all BC industries, based on the value of annual export earnings. I am confident tourism will regain that status before mid-decade.

 Jock Finlayson is Senior Policy Advisor at the Business Council of BC.