EconomyFinancialThe 'super dollar' and inflation aim to generate more...

The 'super dollar' and inflation aim to generate more tourist spending in Mexico

The spending of international tourists in Mexico is heading to close the year above the levels of 2019, benefiting from two unexpected allies: the “super dollar” and inflation .

The entry of foreign currency into the country has recovered since the second half of last year and so far in 2022 has not been the exception. In the first five months of the year, the spending of foreign travelers grew an average of 6.9% per month compared to 2019, with even double-digit increases, as was the case in April – when currencies increased 14.9% compared to 2019 – and May, which had a 15.3% higher spending in the same period.

This dynamism has occurred in a context in which the strength of the dollar has skyrocketed. After hitting a 20-year high in recent weeks, it even outperformed the euro for the first time in two decades , which was recently trading at 0.99 per dollar.

What does this imply for a country like Mexico, where around 70% of foreign tourism came from the United States last June? For specialists, it could benefit the country in terms of currencies, while other markets with less strong currencies could be pressured to travel.

“On the revenue side, we have adjusted the foreign exchange forecasts upwards due to inflation, but we are in a position to exceed the 2019 record of 24,000 million pesos,” explains Francisco Madrid, director of the Center for Tourism Research and Competitiveness (Cicotur ) Anahuac “It would be due to a recovery in demand and an inflationary factor.”

To date, the dollar is an important benchmark in the tourism industry. According to the study ‘ Exchange Rate Elasticities of International Tourism and the Role of Dominant Currency Pricing ‘, published by the International Monetary Fund last February, a general strengthening of the dollar can have a contractionary impact on tourist flows.

“A 1% appreciation of the US dollar against all other currencies can be associated with a 0.12% decrease in tourist flows in one year,” he says.

However, in the current Mexican case, although the forecast is not for more tourists, it is for more spending , due to several factors.

On the one hand, the confinement caused by the pandemic created a generalized desire to travel when possible, to which is added a common phenomenon in developed economies: the change in consumption patterns such as the purchase of fewer goods due to confinement, and the saving content that he left to travel, refers Madrid.

On the other hand, the depreciation of the euro could influence a change in the behavior of tourists from the Old Continent, but also from the United States.

“It is double-acting. The Americans will travel to Europe, which is cheaper , and the Europeans with the crisis will stop coming to Mexico due to the depreciation of their currency and purchasing power”, considers Roberto Montalvo, an academic from the Universidad Iberoamericana.

In the short term, the forecast is that this trend will continue, subject to the effects that other macroeconomic factors, such as the rise in fuel prices, have on other links in tourism, such as the airline sector.

“Inflation itself is on the supply side, not the demand side. It is not because you have a large quantity demanded, but because of an increase in costs and it is a product of this”, concludes Madrid.

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