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ECONOMY UPDATE

Eurozone on course for strongest economic growth in a decade but UK outlook subdued

EUROZONE The Eurozone economy remains in rude health. Q3 GDP growth was 0.6% according to the preliminary estimate. While marginally below the revised Q2 expansion of 0.7%, it nonetheless confirms the continued growth momentum this year. Leading indicators for Q4, such as the PMIs and the EC’s Economic Sentiment Indicator, also point to strong momentum moving forward, implying a sustained period of above-potential GDP growth. Surveys show little evidence that the appreciation of the euro is having an adverse effect on the industrial sector, with industrial production rebounding strongly in August following a soft patch in earlier months. Inflation slowed to 1.4% in October and should continue to fall to around 1% in early-2018 as the impact of the stronger euro is fully felt. Oxford Economics has raised the Eurozone GDP growth forecasts for 2017 and 2018 to 2.3% and 2.0% respectively, from 2.2% and 1.9% previously. As a result, 2017 is predicted to be the fastest year for growth in a decade.

UNITED KINGDOM Q3 GDP growth came in at 0.4%, up slightly on the 0.3% recorded in the previous two quarters. Early indications are that Q4 is likely to see another outturn in the 0.3-0.4% range. Data are suggesting that the services sector carried little momentum into Q4 but the data for the industrial sector remained firm, boosted by a weaker sterling. Despite a modest loosening of the fiscal stance in the November Budget, the near-term outlook remains subdued. Oxford Economics expects the UK to grow by 1.5% both this year and next, before a slight pick-up to 1.6% in 2019. The squeeze on consumers from high inflation will ease only slowly, businesses will remain wary of investing in a climate of Brexit-related uncertainty, while fiscal policy will remain a drag – albeit a diminishing one – on GDP growth.

UNITED STATES The US economy grew at a surprisingly strong annualised rate of 3% in Q3 – registering back-to-back quarterly growth of 3% or more for the first time since 2014. The labour market rebounded from hurricane disruptions with a solid gain of 261,000 jobs in October. The unemployment rate declined to a 17-year low of 4.1%, but this was partially due to a decline in the labour force participation rate. Looking ahead, the PMI manufacturing and non-manufacturing indices continue to point towards strong activity, orders and employment growth, with firm global growth and a competitive currency supporting solid export growth and accelerating business investment. Oxford Economics expects the US economy to grow by 2.2% this year, followed by stronger growth of 2.6% in 2018 supported in part by a tax cut package worth $500 billion (over the next decade). We expect the Fed to raise interest rates in December, followed by at least two more rate hikes in 2018.

EMERGING MARKETS China’s economy slowed slightly in October due to production cuts and weaker exports and real estate activity. Nonetheless, Oxford Economics forecasts strong real GDP growth of 6.8% in 2017, before slowing to 6.4% in 2018 with domestic demand continuing to ease. This in part reflects tighter monetary and financial policies. GDP growth in India is expected to come in at 6.4% in 2017, before accelerating to 7.4% in 2018, with higher infrastructure spending and a pick-up in consumption leading to stronger growth next year.

2017 Global GDP growth (%) 2017 Direct T&T GDP growth (%) 2017 annual update 2.9% 3.8% November 2017 3.2%

Note: Growth rates in this table are stated in 2016 constant prices and exchange rates.

The upward green arrow indicates that given global macroeconomic developments and year-to-date Travel & Tourism performance, Oxford Economics now expects global growth in direct Travel & Tourism GDP to be stronger than expected at the time of the 2017 annual economic impact research update (March 2017).

MONTHLY ECONOMIC IMPACT November 2017

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TRAVEL & TOURISM INDICATOR UPDATE

Evidence of strong global Travel & Tourism performance so far in 2017

• Global international tourist arrivals were up by 6.4% in the first half of 2017, compared to growth of 3.9% for all of 2016. Each world region is growing, with the strongest growth recorded in North Africa (15.6%). The latter can be largely attributed to Tunisia, which has experienced year-to-date growth of 27% and continues its recovery from recent terror attacks. There has also been strong growth of 8.9% for the Middle East region, following a decline in 2016, primarily driven by a 52% year-to-date rebound in arrivals to Egypt. Strong growth was also recorded across other major regions, including Europe (7.7%), Asia Pacific (5.7%) and Sub-Saharan Africa (4.2%). Growth was robust, if less spectacular, at 3.0% for the Americas.

• Global international air passenger traffic has also recorded strong performance this year, with year-to-date growth of 8% to October also faster than growth of 6.7% for 2016 overall. Contributing to this has been particularly strong growth in Asia Pacific (9.3%), Europe (8.4%), Africa (7.7%) and the Middle East (7.0%). North America has also recorded robust growth of 4.8%. It should however be noted that airline traffic is allocated according to the region in which the carrier is registered and should not be considered to precisely measure regional air traffic.

• Regional hotel performance has been positive across most world regions so far this year, except, somewhat surprisingly given other indicator performance, the Middle East, which recorded a decline across all three measures of hotel performance. However, hotel demand performance metrics also need to be viewed in the context of supply trends. For example, occupancy rates can decline even if room demand is rising but at a slower pace than expanding room supply. North Africa recorded stand out growth rates across all key performance indicators, albeit this is partly driven from a low 2016 base. Although less spectacular, solid growth has been recorded across all hotel metrics in Europe, the Americas and Asia Pacific.

Year-to-date (YTD) performance of airline traffic, international tourist arrivals and hotels (% annual growth unless stated)

International air passenger traffic (RPK)

International tourist arrivals Regional hotel performance

Oct-17 2016

(full year) Jun-17 2016

Occupancy rate pp change

Oct - 2017

ADR Oct-2017

RevPAR Oct-2017

Europe 8.4 4.8 7.7 2.1 2.5 3.7 6.3

Americas - - 3.0 3.6 0.8 2.1 2.9

North America 4.8 2.6 1.7 2.8 0.8 2.3 3.1

Asia Pacific 9.3 8.3 5.7 8.6 2.7 0.7 3.4

Middle East 7.0 11.8 8.9 -3.4 -1.2 -4.7 -5.9

Africa 7.7 7.4 7.6 8.0 - - -

North Africa - - 15.6 3.5 13.9 25.3 42.7

Sub-Saharan Africa - - 4.2 8.0 -0.7 5.0 4.3

World 8.0 6.7 6.4 3.9 - - -

Sources: IATA, UNWTO, STR Global.

Note:Across the three metrics, the country composition of the different regions does not match exactly.

FORWARDKEYS AIR TRAVEL BOOKING TRENDS

Air travel growth expected to remain strong during the remainder of 2017

• International inbound: During the three-month period between November 2017 and January 2018, Europe and Africa are expected to be the fastest growing destinations in terms of inbound air travel passengers, according to ForwardKeys. Both regions are expected to experience double-digit growth, which represents a modest pick-up in growth for both regions compared to year-to-date performance. Meanwhile, ForwardKeys booking data suggests solid growth of 8.6% for the November to January period for the Middle East, with growth in Asia Pacific and the Americas expected to be slightly lower, at 6.1% and 5.6% respectively. At a global level, the ForwardKeys booking data suggest that the strong growth in international tourist arrivals reported by the UNWTO for H1 2017, and for IATA year-to-date global air passenger traffic, has and will be maintained through the remainder of 2017 and into the start of 2018.

• International outbound: Africa is expected to be the fastest growing region from an outbound perspective at 14.8%, based on ForwardKeys

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data on bookings issued by the end of October 2017 with a departure date between November 2017 and January 2018. This represents a significant pick-up in growth when compared with the year-to-date growth of 8.9%. Outbound air travel departures growth over the next three months from the Asia Pacific, the Americas and Europe is expected to remain solid with growth of around 8% in each region relative to the same period last year.

• Domestic: Domestic air travel is expected to experience strong growth in the upcoming three-month period across all world regions, with

growth accelerating across all regions relative to year-to-date performance. At a global level, year-to-date growth to October is reported at around 6.4%, with expected domestic departures between November and January growing by 9.9% relative to the same period last year.

ForwardKeys air travel bookings (% annual growth vs. same period last year)

International inbound International outbound Domestic travel

Expected departures

next 3m (Nov-Jan)

Change in growth next 3m vs. YTD

Expected departures next

3m (Nov-Jan)

Change in growth next 3m

vs. YTD

Oct 2017 YTD departures

Expected departures next

3m (Nov-Jan)

Europe 12.3 7.7 7.3 8.8

Americas 5.6 8.0 4.3 6.4

Asia Pacific 6.1 8.0 11.0 23.0

Middle East 8.6 5.5 30.3 41.9

Africa 13.4 14.8 6.6 9.4

World 8.0 8.0 6.4 9.9

Source: ForwardKeys. Note: Data relate to air travel bookings for visitors staying at least one night, expressed as % change compared to the same period last year. Domestic data relate to air travel within the same country.

MAJOR ECONOMY AND TRAVEL & TOURISM HEADLINES LAST MONTH

• Egypt experienced its worst terror attack in recent years when 305 people were killed in a northern Sinai mosque whilst observing Friday prayers.

• The threat of a major volcanic eruption at Mount Agung had a negative effect on Bali’s tourism industry. 40,000 people were evacuated from the volcano’s foothill, alongside the temporary closure of the main airport.

• The US announced it will resume issuing visas in Turkey ahead of a visit by the country’s Prime Minister. The move comes after “high-level assurances” from the Turkish government that no investigations of US embassy employees were pending in the country.

• Robert Mugabe resigned as President of Zimbabwe with immediate effect after 37 years in power.

• Oil prices rose above the $60 per barrel this month, the highest level in two years, after Turkey’s President threatened to cut off a key pipeline used to export oil from Iraq.

• The Japanese economy grew at an annualised pace of 1.4 per cent in the third quarter of 2017, as the country recorded its longest run of unbroken expansion since 2001.

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Sources: UNWTO, TourMIS, JNTO, ONS, NTTO.

• According to the latest UNWTO World Tourism Barometer, global overnight tourist arrivals grew by 6.4% to June 2017, an increase on full year growth of 3.9% for 2016. While an encouraging start to 2017, with data only available for the first half of the year across many countries, and in some cases not covering peak tourist periods, emerging trends should still be interpreted with caution although other data point to this momentum being sustained into H2.

• Europe recorded strong international tourist arrivals growth of 7.7% for the first half of the year. Growth has been robust and broad-based throughout the region with the strongest year-to-date growth in Iceland (30%), Turkey (26%), Slovenia (18%) and Malta (16%). The major Travel & Tourism economies in Europe also recorded strong year-to-date arrivals growth during the period, including Portugal (13%), Spain (10%), France (10%), the UK (9%) and Germany (5%).

• The Americas has been the slowest growing region (3.0%) in terms of international arrivals so far this year, despite double-digit growth in

Chile (17%) and Mexico (12%). The US experienced a year-to-date contraction of 3% for the first five months of the year according to the NTTO, with mixed arrivals performance from key origin markets. Specifically, arrivals from Canada were up for the year to May, but were down from China, Mexico and the UK. However, based on data showing a strong uptick in inbound spending between May and August, arrivals growth is also expected to show improvement during the second half of 2017.

• Africa experienced a positive first half of 2017, with year-to-date arrivals growth of 7.6%. A contributing factor has been the continued

rebound of the tourism industry in Tunisia, with recorded growth of 27% for the first 7 months of the year. However, growth remains underwhelming in South Africa (1%), the region’s largest Travel & Tourism economy.

• The Middle East has been the fastest growing world region in terms of international tourist arrivals so far this year, with year-to-date

growth of 8.9%. A key factor behind this has been the start of the recovery of the Travel & Tourism industry in Egypt, with data for the first seven months of 2017 showing 52% growth in international tourist arrivals. Strong growth has also been recorded for the year-to-date in Israel (24%), Lebanon (12%) Jordan (10%) and UAE (10%).

• The Asia Pacific region also enjoyed a positive start to 2017, with year-to-date international arrivals growth for the first half of the year of 5.7%. There has been double digit growth across several countries within the region, including Nepal (42%), Vietnam (30%), Japan (18%), India (15%), Indonesia (15%) and the Philippines (13%). In contrast, international arrivals to South Korea are down 21% for the first seven months of the year, linked to the diplomatic row with China, which has banned travel agencies from selling package tours to Korea in protest at Seoul allowing a US missile defence system.

Overnight international tourist arrivals growth (% year-on-year to the indicated month) Year to: % Year to: % Year to: % EUROPE

AMERICAS

ASIA-PACIFIC

Austria Sep 2017 4.5 Antigua & Barbuda Jul 2017 -6.1 Australia Jun 2017 7.2

Belgium Aug 2017 11.9 Argentina - - - Cambodia May 2017 12.5

Bulgaria Aug 2017 7.9 Aruba Jun 2017 -8.7 China

Croatia Sep 2017 13.7 Bahamas - - - Fiji Jul 2017 6.3

Cyprus Oct 2017 14.6 Barbados Jun 2017 7.5 Hong Kong Jul 2017 4.9 Czech Republic

Jun 2017 12.8 Bermuda Jul 2017 12.7 India Jul 2017 15.4

Denmark Jun 2017 6.9 Brazil - - - Indonesia Jun 2017 15.2

Estonia Aug 2017 5.0 Canada Jun 2017 6.2 Japan Oct 2017 18.3

Finland Sep 2017 14.0 Chile Jul 2017 17.0 Kiribati Mar 2017 165.0

France May 2017 10.1 Cuba - - - Laos - - -

Germany Sep 2017 5.3 Dom Republic Jul 2017 5.9 Macau Jul 2017 12.6

Greece Jun 2017 6.6 Grenada Jun 2017 5.3 Malaysia May 2017 -0.9

Hungary Sep 2017 6.2 Jamaica Jun 2017 4.3 Maldives Jun 2017 6.1

Iceland Aug 2017 29.9 Martinique May 2017 4.6 Myanmar - - -

Italy Jun 2017 2.0 Mexico Jun 2017 12.2 Nepal Jun 2017 41.5

Latvia Jun 2017 12.8 St Lucia Jun 2017 7.9 New Zealand Jul 2017 8.1

Lithuania Jun 2017 5.3 St Vincent Mar 2017 -6.8 Papua New Guinea Mar 2017 -12.8

Malta Sep 2017 16.3 US May 2017 -2.8 Philippines Jun 2017 12.7

Montenegro Aug 2017 11.4 MIDDLE EAST Singapore Jun 2017 4.5

Netherlands Aug 2017 13.1 Egypt Jul 2017 51.5 South Korea Jul 2017 -21.0

Norway Jun 2017 0.9 Israel Jul 2017 24.4 Sri Lanka Jul 2017 3.6

Portugal Jul 2017 12.8 Jordan Mar 2017 9.5 Taiwan Jul 2017 -5.1

Russia Mar 2017 -8.4 Lebanon Jul 2017 12.3 Thailand Jul 2017 4.5

Slovakia Aug 2017 8.1 UAE Jul 2017 9.5 Vanuatu May 2017 28.9

Slovenia Sep 2017 17.7 AFRICA Vietnam Jul 2017 30.4

Spain Aug 2017 9.9 Kenya May 2017 10.7 REGIONAL ESTIMATES

Sweden Jun 2017 8.4 Madagascar Jun 2017 4.1 Europe Jun 2017 7.7

Switzerland Sep 2017 6.8 Mauritius Jul 2017 6.3 Americas Jun 2017 3.0

Turkey Aug 2017 26.4 Morocco Jun 2017 9.2 Africa Jun 2017 7.6

UK Aug 2017 8.7 Nigeria - - - Middle East Jun 2017 8.9

South Africa Jun 2017 1.0 Asia Pacific Jun 2017 5.7

Tunisia Jul 2017 26.7

Uganda - - - WORLD Jun 2017 6.4

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It should be noted that regional estimates are based on limited country coverage, particularly in the cases of the Middle East and Africa. Sources: UNWTO, NTTO, ONS.

Note: Countries whereby data are recorded in US$ are denoted by an asterisk after the country name.

• In Europe, Russia has recorded strong year-to-date growth in international tourism receipts in US dollar terms (29%), in contrast to its weaker performance for international arrivals for Q1, which is partly due to the appreciation of the ruble compared to 2016. Portugal (21%), Spain (12%) and the UK (12%) have enjoyed similar strong growth in international tourism receipts in line with arrivals performance. Inbound international tourism receipts growth has been particularly strong in Montenegro (21%) and Iceland (17%). Turkey, despite a rebound in international arrivals, has seen receipts decline by 2% in US$ terms in the first half of 2017. However, the lira has depreciated significantly this year against the dollar, and so growth in local currency terms will still be in positive territory.

• In the Americas, international tourism receipts growth has been encouraging in Mexico (10%), Canada (10%) and to a lesser extent, the US (2%). Chile also recorded substantial growth in the first half of 2017 (37%), in line with strong inbound arrivals for the same period.

• In the Middle East, the recovery of the Travel & Tourism industry in Egypt has led to strong inbound receipts growth (128%) for the first

three months of 2017. Receipts growth in Israel (16%) and Jordan (15%) has also been strong in the first half of the year.

• In Africa, Kenya recorded impressive growth in international receipts (37%), consistent with an encouraging increase in international arrivals so far this year. Tunisia’s strong growth in international arrivals has been partly translated into an increase in international tourist receipts with growth in receipts of 10% compared to the recorded 27% increase in arrivals.

• In the Asia Pacific region, Nepal has been the stand out performer with 75% growth in international receipts for the first three months of

the year as the country’s Tourism & Travel industry continues to recover from the devastation of the 2015 earthquake. Other economies within the region have also enjoyed strong growth in inbound receipts such as Macau (18%), Indonesia (17%), Cambodia (14%), and Australia (11%). Japan looks set for another year of strong year for inbound receipts growth, with growth of 9% recorded for the year-to-date. However, it looks likely that growth for 2017 overall will be less spectacular than that enjoyed since 2012. In China, moderate inbound receipts growth of 2% has been recorded for the year-to-date.

International tourism receipts growth (% year-on-year to the indicated month) Year to: % Year to: % Year to: % EUROPE

AMERICAS

ASIA-PACIFIC

Austria Mar 2017 -2.8 Antigua & Barbuda Mar 2017 -5.3 Australia June 2017 10.5

Belgium Mar 2017 -0.8 Argentina* Mar 2017 7.2 Cambodia Mar 2017 13.6

Bulgaria Jun 2017 12.3 Aruba Mar 2017 3.6 China Mar 2017 2.3

Croatia Mar 2017 2.3 Bahamas - - - Fiji - - -

Cyprus Mar 2017 8.5 Barbados Jun 2017 5.5 Hong Kong Jun 2017 -1.3 Czech Republic

Mar 2017 8.4 Bermuda Mar 2017 6.5 India Jul 2017 16.6

Denmark Jun 2017 4.9 Brazil* Jul 2017 -3.4 Indonesia* Jun 2017 17.2

Estonia Mar 2017 0.2 Canada Jun 2017 10.2 Japan Jun 2017 9.1

Finland Mar 2017 8.6 Chile* Jun 2017 37.2 Kiribati* - - -

France Jun 2017 8.3 Cuba - - - Laos* - - -

Germany Jun 2017 4.4 Dom Republic* Mar 2017 9.9 Macau Jun 2017 18.2

Greece Jun 2017 7.1 Grenada Mar 2017 12.3 Malaysia Jun 2017 1.8

Hungary Mar 2017 4.6 Jamaica* Mar 2017 3.7 Maldives* - - -

Iceland Jun 2017 16.7 Martinique - - - Myanmar* - - -

Italy Jun 2017 3.0 Mexico* Jun 2017 9.8 Nepal Mar 2017 75.2

Latvia Jun 2017 -3.1 St Lucia Mar 2017 13.4 New Zealand Mar 2017 0.4

Lithuania Mar 2017 5.0 St Vincent Mar 2017 -8.5 Papua New Guinea Mar 2017 -51.4

Malta Mar 2017 16.2 US* Sep 2017 1.5 Philippines* Mar 2017 -20.1

Montenegro Jun 2017 20.5 MIDDLE EAST Singapore Jun 2017 12.4

Netherlands Mar 2017 3.1 Egypt* Mar 2017 128.3 South Korea* Jun 2017 -25.5

Norway Jun 2017 -1.1 Israel* Jun 2017 16.0 Sri Lanka* May 2017 4.8

Portugal Jun 2017 21.0 Jordan Jun 2017 14.5 Taiwan* Jun 2017 -15.7

Russia* Jun 2017 29.2 Lebanon* - - - Thailand Jun 2017 8.5

Slovakia Mar 2017 1.2 UAE - - - Vanuatu - - -

Slovenia Jun 2017 5.6 AFRICA Vietnam* Jun 2017 6.4

Spain Jun 2017 12.0 Kenya* Mar 2017 37.2 REGIONAL ESTIMATES

Sweden Jun 2017 9.4 Madagascar - - - Europe - - -

Switzerland Mar 2017 0.2 Mauritius Jun 2017 7.8 Americas - - -

Turkey* Jun 2017 -2.3 Morocco Jul 2017 3.1 Africa - - -

UK Aug 2017 11.9 Nigeria* Jun 2017 -8.9 Middle East - - -

South Africa Mar 2017 -5.1 Asia Pacific - - - Tunisia Jun 2017 9.5 Uganda* Mar 2017 49.3 WORLD - - -