The entire world is reeling from the financial crisis that originated in the United States in the fall of 2008. What started as a U.S. crisis only has spread thorough the developed world and has began hitting emerging markets. Many low and middle income countries are reliant on exports for much of their economic activity and the slowdown of world demand has put significant pressure on their economies.



Bulgaria is one example. Bulgaria exports more than half of its production, mostly to European Union countries. The slowdown of the German, U.K., Italian and other economies in the region has had an immediate impact on the Bulgarian economy. Beyond the trade in goods and services, however, a major negative impact is expected to come through the tourism industry. Tourism accounts for roughly 10 percent of Bulgaria's GDP but its rapid development in the last several years has had a strong positive influence on the wider economy. The construction industry was mobilized to build thousands of new hotels and apartment buildings in the reports. Architects, attorneys, and real estate agents worked to design and place the product. Much of the boom in the finance industry came from credits extended to build the resorts and then to finance the purchase of apartments and villas in these resorts by individuals.

All of this is poised to come to a halt in the next few months. In fact, much of the activity has already stopped. There are few purchases of real estate in the resorts by domestic or international investors. The construction industry has stopped the massive projects and banks have all but pulled out from lending. This has had a chilling effect on the entire economy, spreading unemployment through all ranks of the labor force. In that environment, any glimmer of hope is highly appreciated. For some time Bulgarians have been banking on growth in their tourism industry. Its growth has indeed been spectacular in the last several years but even this pillar of economic activity is now threatened. How real is the danger?

Starting in the fall of 2008, many touroperators reported a drastic fall in inquiries and bookings, by as much as 40-50 percent compared to last year. Such a drastic decline in bookings would definitely lead to massive bankruptcies of hotels and other tourism establishments. The countries in the region, including Greece and Turkey, are aggressively promoting their tourism destinations with state subsidies and lower prices, putting extra pressure on Bulgaria's competitiveness.

Looking more closely at developments, however, gives a more nuanced picture. Judging by the ski season which ended this month, early bookings were indeed extremely low contributing to the anxiety of touroperators and hotel owners. However, they rebounded in the last minute to get to the same level as last year. It seems that tourists have not given up on holidays. Instead, because of the uncertain times, they wait until the season has almost started before arranging their vacations. This way they face less uncertainty about whether they can actually afford a holiday. They can also take advantage of last minute deals. It seems that international tourism is not dead, yet.