Travel & Tourism Trends and Economic Impact. September 2013 Monthly Update

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1 Travel & Tourism Trends and Economic Impact September 2013 Monthly Update

2 Summary Key trends and developments in Travel & Tourism Since WTTC published its annual economic impact update in March 2013, economic and industry developments suggest that despite positive indications of growth in visitor arrivals, macroeconomic revisions suggest domestic tourism is likely to be muted. As such, Travel & Tourism growth is expected to turn out grow slower than the 3.1% forecasted in the annual update, with all regions likely to be marginally weaker than previously anticipated. In September, all regions remain largely unchanged in terms of the macro economy, resulting in world GDP growth for 2013 also remaining unchanged. Within regions however there has been mixed news. France s better than expected Q2 GDP growth in 2013 has resulted in an upward revision for the rest of the year, suggesting the economy may avoid a contraction in However, North Africa and India have experienced significant downgrades of 1.8% and 0.5% respectively. It should, however, be noted that both remain in positive GDP growth territory. In North Africa, a disappointing recovery post Arab Spring remains a significant challenge. While in India, contraction in Q2 GDP figures were sharper than anticipated and downward risks from inflation, increased interest rates and the potential for increased capital flight. Travel & Tourism indicators which cover the first half of the year are encouraging and suggest the industry, at least the international component, has once again outperformed the overall economy. UNWTO data shows July YTD world tourist arrivals growth has increased to 5.2% compared with 3.8% in 2012, despite the downgrades to economic growth outlooks and general disappointing pace of global economic recovery. Growth in arrivals has been accompanied, as would be expected, by higher international passenger traffic, with YTD world passenger kilometre growth for July at 4.9% compared with 6.1% growth for the same period in With the exception of Asia-Pacific, performance across hotels remains generally positive with occupancy rates growing across all regions, according to YTD data for July.

3 Wider economy update (1) Eurozone: The 2013 GDP forecast remains largely unchanged for the Eurozone. However, performance across countries remains varied particularly between larger and peripheral members. The publication of Q2 GDP for France was better than expected, resulting in an upward revision of the 2013 GDP forecast to 0.3% from a contraction of 0.1% last month. Peripheral members are showing positive signs, with the labour market appearing to stabilize, particularly in Portugal where the July unemployment rate has fallen to 16.5%, the lowest rate since September Signs of inflation gathering pace in Germany is also likely to help peripheral economies in terms of a decline in German competitiveness. However, counter to this, the appreciation of the Euro over the past month from 1.32 USD to 1.35 USD remains a risk, potentially dampening an already fragile export-led recovery still coping with weaker global demand. USA: The US GDP forecast for 2013 remains unchanged at 1.6%. It is likely that given Q2 growth was supported mostly by real net trade and stock-building, that Q3 growth will be somewhat weaker. However, Oxford Economics forecasts expect Q4 to be much stronger. It is not quite known what effect, if any, the Federal Reserve s U-turn on tapering the amount of quantitative easing will have on GDP in the short term, but is expected to be insignificant at least in the medium term. The postponement of cut backs to quantitative easing was justified mainly due to lack of improvement in the US labour market, with unemployment (currently at 7.3%) still 0.8 percentage points above the Fed s unemployment threshold rate of 6.5%.

4 Wider economy update (2) UK: The UK economy s GDP forecast for 2013 is unchanged from last month. Despite a continuing run of positive data, monetary policy and in particular, forward guidance, does not seem to have had the desired effect on markets that the Bank of England would have hoped. Forward guidance aims to guarantee low interest rates until the UK unemployment rate drops below 7%. Data over the last few months indicates a drop in the ILO unemployment rate, falling to 7.7% in the three months to July from 7.8% in the previous three months, while employment rose by 0.3% on the quarter. This has raised uncertainty for investors who may now fear that rates will remain low until 2016, as the Bank of England forecast suggests. As a result, 10-year yields have risen sharply in anticipation for increases in interest rates. Other indicators remain positive. House prices as measured by the RICS survey have continued to rise, reaching their highest level in August 2013 since July 2007, fuelling talk of another house price boom in the UK. Although in reality this boom is only being felt in certain parts of the UK. The Purchasing Managers Index is also encouraging with both output and new business at their highest points since pre Middle East: The GDP forecast for 2013 in the Middle East remains unchanged at 3.2%. In the short-term, potential US intervention in Syria augmented speculation in the region s oil market. The immediate Syria-related price effect seems to be a rise from $107 to $110 per barrel last month. Although the deal reached on chemical weapons now suggests US intervention is much less likely. Some economies are also experiencing higher production in response to supply interruptions elsewhere in OPEC. However, in the medium term at least, the benefit accrued to GDP as a result of higher oil prices depends on the duration of instability in Syria, with a prolonged conflict likely to increase prices for a longer period.

5 Wider economy update (3) Africa: Despite the GDP forecast for 2013 in Sub-Saharan Africa remaining largely the same as last month, North Africa has once again been revised downward to 2.1%. This revision has been driven by an expected 5% contraction in Libyan GDP in 2013 as infrastructure projects and capital expenditure are likely to be pushed back to 2014 at the earliest. Data projected by the IMF that includes the impact of war on the region, as well as negative impacts associated with the Arab Spring generally, suggest a 28.3% or $6.5billion decrease to Libyan GDP. Asia-Pacific: The Asia-Pacific GDP forecast for 2013 remains unchanged from August at 4.1%. A marginal upward revision and continuing confidence surrounding the region s second largest economy, Japan, has balanced out a significant downward revision to the Indian economy. Published Q GDP data for India shows a quarter on quarter decrease of 6.75%. Although Q2 has been traditionally negative for the economy, due to seasonality factors linked to agriculture, and this contraction was expected, this fall has been sharper than originally anticipated. GDP growth for 2013 has been revised down to 4.5% in India, compared with 5% last month. This is a significant downward revision compared to the 5.9% GDP growth for 2013 forecast at the time of the annual update. India s problems are mainly the depreciation of the rupee, which reached a historic low in August of 68 INR per USD and has continued into September, currently standing at 62 INR per USD. This has resulted in rising inflation, particularly energy inflation partially due to imports in oil increasing further in price given it is traded in U.S. dollars. Depreciation over the year as well as inflationary pressure and increased capital flight has convinced the Reserve Bank of India to increase interest rates from 6% in June to 7.25%. Downside risks remain should investor confidence continue to remain low.

6 Likely impact on Travel & Tourism forecasts for 2013 In early March 2013, WTTC launched the results of its 2013 annual economic impact research. The key messages were: 2012: The global Travel & Tourism industry defied economic uncertainty by out-performing the global economy in 2012, with its direct contribution to GDP growing by 3.2%. 2013: The Travel & Tourism industry is forecast to expand its direct contribution to GDP by 3.1% in 2013, faster than the 2.4% predicted for global economic growth. While the slowdown in Travel & Tourism international demand growth observed in the second half of 2012 is forecast to continue (as outturn data is confirming), this trend should ease given stabilising macroeconomic conditions and fewer major downside risks to the global economy. Since WTTC published its annual economic impact update in March 2013, economic and industry developments suggest that despite positive indications of growth in visitor arrivals, macroeconomic revisions suggest domestic tourism is likely to be muted. As such, Travel & Tourism growth is expected to turn out grow slower than the 3.1% forecasted in the annual update, with all regions likely to be marginally weaker than previously anticipated. In September, all regions remain largely unchanged in terms of the macro economy, resulting in world GDP growth for 2013 also remaining unchanged. Within regions however there has been mixed news. France s better than expected Q2 GDP growth in 2013 has resulted in an upward revision for the rest of the year, suggesting the economy may avoid a contraction in However, North Africa and India have experienced significant downgrades of 1.8% and 0.5% respectively. It should, however, be noted that both remain in positive GDP growth territory. Regarding the former, a disappointing recovery post Arab Spring remains a significant challenge. In the case of latter, contraction in Q2 GDP figures were sharper than anticipated and downward risks from inflation, increased interest rates and the potential for increased capital flight.

7 Likely impact on Travel & Tourism forecasts for 2013 Travel & Tourism direct real GDP a (annual % growth) 2013 forecast Mid-year update Sept 2012 Annual update March 2013 Direction of growth revision (Sep 2013/Annual Update 2013) Direction of growth revision (Sep 2013/Aug 2013) Europe USA Asia Latin America Middle East Africa World Source: Oxford Economics a based on growth in US$ constant price terms (2011 prices)

8 Latest Travel & Tourism indicators According to the UNWTO World Tourism Barometer, YTD world international tourist arrivals to June grew by 5.2%, a notable increase on last year s growth rate of 4%. All regions experienced some degree of growth in international arrivals, however this growth appears to be driven mainly by a resurgence in arrivals in Europe and (to a lesser extent) the Middle East, with international tourist arrival growth being slower compared to 2012 in all regions except both of the above. Europe has particularly impressed, with no less than eight countries across the region posting YTD growth figures in international visitor arrivals in excess of 10%. Only Sweden and Cyprus posted negative YTD growth figures (-0.5% and -7% respectively). By contrast, arrivals growth in the Americas has been subdued, growing at only 0.6%, down 4 percentage points from 2012 s 4.6% growth rate in international tourist arrivals. YTD international air passenger traffic growth for July, as measured by RPK (revenue per kilometre), increased to 4.9%. However, this level of growth is still weaker than 6.1% as measured in At a regional level, although all regions have experienced growth compared to last year, YTD growth still remains slower in all regions except North America and Africa compared to last year. With the exception of Asia-Pacific, performance across hotels remains generally positive with occupancy rates growing across all regions according to YTD data for July. North Africa has enjoyed 3.5% growth in occupancy rates, however average daily rates (ADRs) have fallen. The same trend is observed in Sub-Saharan Africa, where occupancy rates also saw an increase but fall in ADR. Contrastingly, despite the reduction in ADRs in the Asia-Pacific region, occupancy rates also remain surprisingly low for the region. Weak underlying demand has driven these falls in both occupancy and average daily rates, but may also be in part due to a return to form from a stronger performance last year.

9 Latest Travel & Tourism indicators YTD performance of airline traffic, international tourist arrivals and hotels (annual % growth) International air passenger traffic (RPK) International tourist arrivals Regional hotel performance. Latest month Jul (YTD) (YTD - Jun ) Occupancy rate (2013 YTD - July) ADR (2013 YTD - July) RevPAR (2013 YTD - July) Europe Americas North America Latin America Asia-Pacific Middle East Africa North Africa Sub-Saharan Africa World Sources: IATA, PATA, Haver Analytics, Eurostat, UNWTO, STR, STR Global, Oxford Economics Notes: International air passenger traffic and regional hotel performance - Africa includes North Africa; international tourist arrivals - Africa only includes a limited number of countries

10 Latest Travel & Tourism indicators Overnight visitor arrival growth in 2012/2013 (% year-on-year, January 2012/2013 to the indicated month) Year to: % Year % Year to: % Austria Jul Canada Jun Hong Kong Jun Belgium Q US Q South Korea Jul Denmark Jun Mexico Jun Macau Jul Finland Jun Chile Jun Taiwan Jul France Apr Anguilla Jun India Jul Germany Jun Antigua & Barbuda Jun Maldives Jun Greece Jun Aruba Jun Nepal Jul Italy May Bahamas May Sri Lanka Jun Netherlands Q Barbados Jun Portugal Jun Bermuda Jun Cambodia Jun Spain Jul Cayman Islands Jul Indonesia Jun Sweden Jun Cuba Jun Laos Q UK Jun Dom Republic Jul Malaysia Jun Dominica Q Myanmar Jul Bulgaria Jun Grenada Q Papua New Jun Cyprus Jun Jamaica Jun Philippines Jun Czech Republic Jun Martinique May Singapore Jun Estonia Jun Puerto Rico Q Thailand Jul Hungary Q St Lucia Jun Vietnam Jul Latvia Jun St Vincent Apr Australia Jun Lithuania May British Virgin Apr New Zealand Jul Malta Jun US Virgin Islands Jun Fiji Q Poland Q Bahrain Q Kiribati Q Russia Q Israel Jul Tonga Q Slovakia May Jordan Q Vanuatu May Slovenia Jun Lebanon Jun REGIONAL ESTIMATES (1) Montenegro Jun UAE Q Europe Jun Croatia Jun Egypt Jun Americas Jun Iceland Jun Mauritius Jun Africa Jun Norway Jun South Africa Apr Middle East Jun Switzerland Jun Tunisia Jun Asia-Pacific Jun Turkey Jul Japan Jul China Jun WORLD Jun (1) based on these 90 countries only; coverage good for Europe, North America, the Caribbean and Asia-Pacific but very limited elsewhere Source: Oxford Economics, UNWTO