EUROPEAN TOURISM 2010 â Trends & Prospects - VisitBritain

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24 European Tourism in 2010: Trends & Prospects (Q2/2010)modestly this year. Consumer sentiment remains fragile and with householdsshowing no sign of wishing to re-leverage, we anticipate that consumerspending will make only modest positive contributions to growth this year andnext.UK: Unemployment%111098Forecast76ILO543Claimant count21994 1996 1998 2000 2002 2004 2006 2008 2010 2012Source: Oxford EconomicsHowever, progress is unlikely to be smooth and we still expect growth for 2010as a whole to be just over 1%, accelerating to 2.3% next year. Not only willthere be little support from consumers, and a significant drag from the publicsector, but investment is unlikely to make a significant contribution to growth inthe short term either.US EconomyThe economy continues to exhibit signs of a solid rebound from the recession.Industrial production rose 0.8% in April and is now 5.2% above its year-earlierlevel. Manufacturers’ orders have risen for eight consecutive months and orderbacklogs have started to edge higher, suggesting that even higher productionwill be necessary to meet current demand. The ISM indexes have also beensignalling strong growth in both the manufacturing and non-manufacturingsectors for several months.Recovery in US is stillrobust, but growth willslow in second halfwith added risk fromexposure to Europe.There have, however, also been some surprisingly weak monthly statistics. Butit is too soon to be sure whether these represent a change in trend or merevolatility. Real consumer spending was flat in April, but that followed twomonthly readings of 0.5% growth - a 0.3% average monthly growth rate forconsumption is actually quite strong. With confidence modestly rising (thoughstill low) and car sales stronger than anticipated in May, the April consumptionfigure seems less worrisome.The weak reading on private employment in May is another case in point.Private payrolls expanded only by 41,000 in May, a disappointing figure. Yet,since the end of last year, private payrolls have risen 0.5%, not a bad outcome.© European Travel Commission, July 2010
European Tourism in 2010: Trends & Prospects (Q2/2010) 25And the average workweek rose again in May, suggesting that demand for laborcontinues to increase.Low inflation and low interest rates are also supporting the economy. TheFederal Reserve continues to hold short-term interest rates at extremely lowlevels and even when it does begin to raise them, it will take a considerabletime before they reach restrictive levels. And recently long-term rates havefallen, which will support business investment, personal consumption of durablegoods and home purchases.Consumer confidence1985=100140120100806040202001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Conference BoardThere are a number of factors that will be leaning against the economy. Whilethe housing market has shown signs of life, some of that improvement has beendependent on the homebuyers’ tax credit, which has now expired. Foreclosuresremain an issue, and there is excess supply of homes for sale. Similarly, whileconditions for consumers have improved, confidence is recovering very slowlyand remains quite low. And even though federal stimulus spending continues,state and local governments remain under budgetary pressure and are cuttingspending. And the strong dollar is eroding US trade competitiveness and willconstrain export growth while promoting imports.The most serious risk to the forecast is the European debt crisis. That crisis isalready having an impact on the US economy, as it is a key cause of both therise in the dollar and the fall in long-term interest rates. In addition, Europe is akey market for US exports, and as its prospects dim, so do hopes that trade willbe a significant source of US growth. The biggest issue, however, is thepossibility that the financial system could be stressed again. Concerns aboutEurozone debt markets have already contributed to a drop in stock prices, andin the event of a debt restructuring in parts of the Eurozone or other major creditevent, US banks would face possible losses on debt holdings and concernsabout counterparty risk would rise sharply – risking a renewed ‘freezing’ ofcredit markets.While conditions forUS consumers haveimproved, confidenceis recovering veryslowly and remainsquite low.© European Travel Commission, July 2010
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