Americans have been indulging in “revenge tourism” since pandemic restrictions were lifted, and the recent rise in the dollar has made it even more appealing.
In reality, Many Americans went to Europe that many cities are trying to find ways to limit overtourism. That’s because the Federal Reserve’s aggressive interest rate hikes and long-term higher stance have boosted the dollar against the world’s leading currencies, which have slumped as central banks Other central governments are expected to start cutting interest rates soon.
The U.S. Dollar Index, a measure of the greenback against a basket of currencies, has risen about 4% year-to-date and 5.6% from its low in July 2023. As a result, the dollar gained longer commutes abroad, making foreign vacations cheaper for Americans.
But American travel abroad is counted as an imported service when calculating GDP. disappointing growth in the first quarter partly due to the growing trade deficit. In recent months, the share of imports of services devoted to tourism reached its highest level since 2005, as the dollar also experienced a period of strength, according to a note from Wells Fargo on Friday.
“On the services side of trade, the United States has a trade surplus,” the analysts wrote, “so if foreign tourism continues to surge alongside a growing goods deficit, net exports can significantly affect real GDP growth.”
Wells Fargo also calculates that dollar strength during a similar period from 2014 to 2015 saw tourism imports (Americans vacationing abroad) increase by about $1.1 billion, while Tourism exports (foreigners vacationing in the US) were little changed.
Certainly, tourism services worth $1.1 billion account for 1.5% of the total trade balance, analysts added. But don’t let that small share fool you.
Wells Fargo concluded: “In short, outbound travel growth may not be enough to boost turnover in any given month, but over time it could become a factor with a greater impact on net exports compared to current assessments.
