|Tourism Industries International Travel and Forecast for the US - Chart #18
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Let's delve a little deeper into the forecast by evaluating specific countries. Although Tourism Industries has projected annual growth forecasts for 31 countries as well as the world regions, the following analyses focus on ten of the markets.
Though some indicators have improved - household expenditures were up in January, year-over-year, the leading and coincident indicators have recovered, stock prices are up, and the yen has firmed - most of the indicators imply that the economy is still contracting. With employment down 1% and wages down 2%, improvements in consumer spending will be short-lived, despite all the tax cuts. To make matters worse for the prospective Japanese traveler, the Yen depreciated 8.2% to an average 130 yen to the U.S. dollar in 1998. Even the most devout tourist would be hampered by such events. These macroeconomic fundamentals dictated a 9% decline in Japanese arrivals to the U.S. in 1998.
The government stimulus will build during the course of 1999, resulting in positive growth in the second half of the year. At best, the Japanese economy will hit bottom this year, begin to recover and - with the resolution of the financial crisis - continue to expand modestly in 2000. There have been some signs that consumer spending has finally recovered. Disposable income is growing due to large tax cuts. This has increased spending slightly. Real GDP is now expected to decline in 1999, by 1.6% and rise an anemic 1.0% in 2000.
The outlook for visitor arrivals follows this trend with an anticipated decline of another 2.2% in 1999 before picking up again in 2000. However, the 2-3% growth expected between 2000 and 2002 will still leave arrivals short of the level achieved in 1996.
Steady growth in consumer spending has been sustained by continued expansion in employment. Employment continued to rise during the fourth quarter of last year. This employment expansion and correlating income growth, combined with a strengthening pound, provided the impetus for 6.8% growth in arrivals to the U.S. in 1998.
However, this rate of growth for arrivals will be unsustainable in 1999. In annual terms, real GDP growth is expected to remain barely positive this year at 0.8%, before picking up to 2.5% in 2000 and 2.9% in 2001. Arrivals will stagnate this year as the U.K. economic growth comes to a halt. However, growth in income will continue to make the U.K. a key source of arrivals growth in the outer years of the forecast. Real household disposable income is forecast to grow by between 2.5% and 3% over the forecast period. As a result, arrivals from the U.K. will expand 4.9% in 2000 and 5.6% and 5.2% in 2001 and 2002, respectively.
The outlook for Germany maintains consistent real growth over the forecast period as international conditions improve and gains from the Euro are realized. Already, labor markets appear to have improved in January and February. Domestic new orders were up a surprisingly strong 2.3% in January compared to the fourth quarter average, and foreign orders stopped declining further. On the back of the fiscal stimulus at the start of the year, consumer confidence rose to an all-time high in January, and retail sales were up 0.3% from the fourth quarter average that month. This fundamental economic strength, combined with a strengthening Euro, should lead to modest growth of 2.0% in arrivals to the U.S. this year with an acceleration to 3.0% in 2000, slowing to just over 2.0% in 2001 and 2002.
After the Brazilian Real collapsed in January, 1999 and a new free-floating exchange rate was announced, the real depreciated until it reached R$2.16 per dollar. Renewed confidence has brought it back to the R$1.7 to R$1.8 range. To sustain this confidence, the Brazilian political system must implement the necessary fiscal reforms. Though the overvalued real was the immediate cause of the Brazilian crisis, its devaluation is insufficient for a full recovery in Brazil. There are several structural problems which must be addressed, including an ever-growing domestic debt, stagnant economic growth, extremely high real interest rates and a very short maturity on the domestic debt. In addition, rising oil prices have compounded Brazil's problems, putting further pressure on the fiscal accounts. Reserves will also be affected as petroleum prices have increased 40% in the last two months in dollar terms or - together with the 40% devaluation of the real - 80% in terms of the Brazilian Real. Finally, any change in the key policy interest rate would decrease liquidity and would reduce confidence in Brazil, lowering capital inflows.
The economy is forecasted to have a negative 3.8% GDP growth in 1999 and will post a moderate recovery of 2.6% positive growth in 2000. These estimates assume the implementation of the fiscal package and the reduction of the benchmark interest rates. In 2000, Brazilians will begin to increase their travel cautiously, posting 2.8% growth in arrivals. By 2001 and 2002, Brazil should be in recovery mode, posting annual GDP growth of almost 5% and, thus, arrivals growth of almost 6%.
Leading indicators for the French economy point to a weak first half of 1999, with the EU and OECD indicators still sliding, albeit not at the rates recorded in the second half of last year. Domestic demand is still expected to be the main contributor to economic growth this year with consumer demand still leading the way. Growth is expected to be weaker this year as the export sector suffers from the weakness in the global economy as indicated by export order data from business surveys. Thus, visitor arrivals to the U.S. are projected to slow down to just under 2% growth in 1999 from the 3.6% recorded last year. However, some improvement in international conditions during the second half of the year should lead to a modest upturn in economic growth and consumer confidence towards the end of this year. This should translate into more healthy, although modest, arrivals growth between 2.5% and 2.6% over the period 2000 to 2002.
After a steep decline of 5.9% in 1998, real GDP for South Korea is expected to register a respectable recovery in 1999, growing at 2.5%. As a function of the 1998 recession as well as a 44% devaluation of the Won, arrivals from Korea sustained major losses in 1998, declining over 50% for the year. This dramatically decreased Korea's position as a major source market of arrivals to the U.S. and left an unmistakable deficit in tourism revenue.
Korea has made rapid strides on its road to recovery indicating that the worst may be over for the Korean economy. A number of indicators corroborate this. Industrial production has grown for three consecutive months with expectations for this trend to continue as interest rates are lower than their pre-crisis level, domestic orders have stopped declining, and inventories have been depleted. Inflation is expected to be somewhat higher in the coming months. Exports are forecasted to register a moderate growth of 2.1% in 1999 while imports are estimated to post robust double-digit growth. Despite a strong recovery in imports, Korea should end up posting an enormous trade surplus in 1999. As the economy regains a foothold, arrivals to the U.S. should recover. Pent up demand is brewing which contributes to the optimistic estimated recovery from last year's downward spiral to a positive growth level of over 9% for 1999. Although it may not be sustained at such high increases, the strengthening Won should support continued 4% to 5% growth levels through the rest of the forecast period.
Real GDP grew by 4.8% in 1998 and is projected to grow by 4.4% in 1999. This slight decline in growth will be primarily due to an anticipated decrease in domestic demand. All components of domestic demand are predicted to decline in 1999: Private consumption is expected to increase by only 4.7% compared to 6.5% in 1998; government consumption is expected to grow by 4.2% versus 5.1% in 1998; and gross fixed investment is expected to grow by 7.9%, down from 9.1% in 1998.
The New Taiwan dollar has been stabilizing over the last six months. The annual exchange rate is projected to be 33.5NT$/US$ for 1999. The Central Bank has focused on maintaining a stable currency, and it has been actively intervening to keep the exchange rate at approximately 32-33NT$/US$. Although economic growth is not forecasted to pick up until 2000, currency stability will provide for resumed growth in arrivals this year at 4.2%. As the New Taiwan dollar and income growth strengthens in the outer years of the forecast, Taiwanese arrivals are projected to pick up to 5.6% and 5.7% growth in 2001 and 2002, respectively.
Without suffering it's own economic crisis, a ripple effect looms on the Argentine horizon. Brazil's potential currency devaluation would certainly impact its nearby trading partners and competitors. Argentina's private consumption is the key for 1999 as exports to neighboring Brazil decrease and producers try to sell their stocks in the domestic market. However, a boom in domestic consumption does not seem likely. Interest rates for personal loans are still extremely high, especially for loans in pesos. Credit card interest rates are even higher than interest rates for personal loans, some credit cards charging up to 75% per year on balances. This is true even in a country that has had an almost 0% inflation rate for the past four years. Consumers are taking the Brazilian crisis and its effects over the Argentina's economy seriously. The recently created Consumer Confidence Index (by the Universidad Torcuato Di Tella, one of the most prestigious private universities) is clearly showing that Brazil's problems are also Argentina's problems.
In addition, unemployment is expected to increase in 1999 to 15.3% from 12.9% in 1998,. even though the government is designing new programs to minimize the effects of the crisis on the high level of unemployment.
This declining consumer confidence and higher unemployment is expected to lead to a 1.4% decline in visitor arrivals to the United States in 1999. The long-term outlook for the Argentine economy remains positive even though it will have to weather the crisis produced by the Brazilian devaluation in 1999. A fixed exchange rate to the U.S. dollar and brisk growth in economic production (GDP) will spur a turnaround in arrivals as well. Argentina will provide visitors the U.S. at an increasing rate of over 5% in 2000 and approximately 7% in 2001 and 2002.
|Chart #18 Forecast by countries|