Report suggests that the uneven economic recovery in Europe may affect outbound travel demand. 

ITB Convention – Market Trends & Innovations

One of the most important messages to come out of the IPK/ITB World Travel Trend Report is that the economic recovery in Europe has not been as strong as expected, due in large part to weak consumer demand. Forecasts from the International Monetary Fund made in October 2005, which were in line with projections presented at the Pisa Forum organised by IPK International the same month, pointed to growth of 2.5% in 2005 overall (down from 3.6% in 2004), and 1.2% for the eurozone (2.0%). And these have since been proved accurate.

As indicated in the World Travel Trend Report, there has also been slow growth for some key European tourism destinations, such as France, Belgium, Germany, the Netherlands and Italy. Better growth is expected for Spain, Sweden and Austria. And the UK's performance is also still above average, although growth has slowed significantly since 2004.

By contrast with Western Europe, the less mature economies remain comparatively robust. The group of Central/East European countries (excluding the CIS, or states of the former Soviet Union) is expected to grow almost twice as fast as Western Europe – albeit at a slightly lower rate than the Russian Federation or Turkey.

Growth is expected to improve in Western Europe in 2006 and 2007, but it will remain more stable in Central/Eastern Europe – albeit at a much higher level. Things could get worse if oil prices rise again, although this looks less likely now.

The continuing strong euro could be both positive and negative for Europe, the World Travel Trend Report maintains. It could deter long-haul visitors from US dollar-based economies, but should stimulate demand from markets within the eurozone. Nevertheless, the perceived high costs of tourism services and products in the eurozone are increasingly encouraging nationals who usually holiday at home to venture abroad. The French are the prime example, but less mature markets from Southern/Mediterranean Europe, such as Greece and Portugal, are also showing above-average growth rates for outbound travel.

Sharp variations in consumer confidence levels across Europe

Research by GfK for the European Commission, which was presented at the Pisa Forum by Rolf Bürkl, Senior Research Consultant, highlights the sharp differences in consumer confidence levels in five key European countries – France, Germany, Italy, Spain and the UK – all of which have a strong influence on travel demand. The research, based on 2,000 interviews monthly, also shows that consumer confidence strongly influences private consumption and willingness to buy.

"Over the past ten years, Spain and the UK have remained consistently at the top of the ranking, as far as consumer confidence and household consumption expenditure are concerned," said Mr Bürkl, "with the UK losing ground to Spain in recent months as consumer confidence has fallen somewhat."

GfK attributes this to a whole range of increasing uncertainties regarding the costs of energy, the housing market, disposable income and pensions, and terrorist threats. Consumer confidence and private consumption remain at a higher level in Spain, partly due to continuing low interest rates.

The consumer climate in Italy has improved significantly since 2004, but there are doubts that this can be sustained, GfK says. Meanwhile, confidence is falling in France and, in Germany, it remains at a very low level, resulting in a continued stagnation in domestic demand.

Germans remain cautious about spending and travelling abroad

"While private consumption has quadrupled in the UK and Spain over the last ten years, it has risen by 20% in Italy and France and by a very modest 10% in Germany," Mr Bürkl added. "This helps to explain why Germans have remained very cautious about spending generally, and why outbound travel growth has been very subdued."

Last year was the first time since World War II, for example, that private consumption in Germany declined for the fourth successive year. And this has resulted in a growth in panic saving. As far as travel demand is concerned, the market was forecast to show only modest growth last year of 1-2%. Next year might be slightly better, but the FIFA World Football Cup could encourage Germans to forego foreign holidays.

Willingness to buy is falling in France, which suggests that 2006 could see a decline in outbound travel – or at least a slowdown in growth, and it is stagnating in the UK, Spain and Italy. Prospects for 2006 are nonetheless quite good for Spain, GfK maintains, but the UK and Italy are more difficult to assess.

One thing is very clear. While outbound travel growth has slowed slightly out of the UK in recent months, it is not a market that can be dismissed lightly. The travel industry may see a decline or slowdown from one sector, but there is always another sector ready to emerge.

Rolf Freitag, President of IPK International and founder of the Pisa Forum, which is the source of the World Travel Trend Report, will provide an update of trends for 2005 and forecasts for 2006 during his annual ITB Berlin Message at 16.00 on Friday 10 March.