OUTLOOK FOR THE GLOBAL ECONOMY AND TRAVEL

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1 January 2018 OUTLOOK FOR THE GLOBAL ECONOMY AND TRAVEL Adam Sacks President Tourism August 2018

2 Outline The Outlook for the Economy and Travel Views on the global economy Risks Will there be enough demand? Oxford Economics

3 How many galaxies are in the Universe? In 1995, NASA s Hubble Space Telescope identified between 100 billion and 200 billion galaxies in the Universe This was the working estimate for the next 20 years until. Astronomers at the University of Nottingham now say the number of galaxies in the observable Universe is 2 trillion Conclusion: economists are more reliable than real scientists

4 Broad-based growth World GDP by major market in 2018 % change India China World United States South Korea Australia Mexico Canada Brazil France Germany United Kingdom Japan Source: Oxford Economics 0.0% 2.0% 4.0% 6.0% 8.0%

5 Global growth peaked in early 2018

6 with trade indicators also slowing sharply World: Alternative trade indicators % year, 3mma 50 IATA air freight 40 RWI freight 30 HK/Shanghai cargo Source : Oxford Economics/Haver Analytics

7 Synchronized growth in both advanced and emerging economies World GDP % change 5.0% 4.3% Emerging Markets Advanced Economies 4.5% 4.6% 4.5% 4.0% 3.8% 3.7% 3.0% 2.0% 2.0% 2.3% 1.7% 2.3% 2.3% 1.9% 1.0% 0.0% Source: Oxford Economics

8 Next year likely to experience slowdown World GDP by major market % change India China World United States South Korea Australia Mexico Canada Brazil France Germany United Kingdom Japan % 2.0% 4.0% 6.0% 8.0% Source: Oxford Economics

9 Q2 will likely represent the growth peak this year

10 WHY IS THE ECONOMY SLOWING?

11 1. Protectionism G-3: Investment indicators % year, 3mma Standardised indicator 3 Survey-based indicator, advanced 2 3 months (RHS) G-3* investment goods orders indicator (LHS) Source : Oxford Economics/Haver Analytics * US, Germany, Japan -4

12 2. Higher gasoline prices weigh on income & spending

13 3. Higher interest rates pushing up borrowing costs 3. Higher interest rates pushing up borrowing costs

14 US OUTLOOK

15 Private sector confidence remains upbeat

16 and wage growth slowly firming

17 Consumer spending growth is solid but slowing Price effect

Consumer spending remains solid around 2.5-3.

18 Consumer spending remains solid around % Winter slowdown to be followed by Spring rebound

19 We see business investment growth peaking in 2018

20 Expect a slowdown over next two years

21 Dreaded Recession? Not yet but rising risks US: Probability of a recession 6 months ahead Percent, 6months lead Using the Chicago Fed National Activity Index, the real federal funds rate & the yield curve Recession shading Source : Oxford Economics

22 Travel activity in the US has strengthened this year

23 RISKS

24 What could possibly go wrong?

25 Risk #1: Trade protectionism

26 Risk #2: Fed s balancing act could prove challenging Recession shading Faster inflation could lead to a more hawkish Fed and a market indigestion. A wider a budget deficit and reduced asset purchases from the Fed could push up long term rates

27 Risk #3: Wages must increase

28 Savings dip : Savings = ½ spending since 2015 US: Consumer spending growth attribution % Income contribution Savings contribution Real PCE growth Source : Oxford Economics / Haver Analytics

29 But savings dip driven mostly by lower-income families US: The bottom 60% are driving the savings dip US$ billion Total savings (2015) Top 40%: increased savings Bottom 60%: decreased savings Source : Oxford Economics / Consumer Expenditure Survey Total savings (2016)

30 Risk 4: Financial market stress US: Consumption impact of an equity correction % change Wealth effect Follow-on effects Source : Oxford Economics Top 40% Bottom 60%

Risk 4: Fiscal overdrive and growth exhaustion Key risk for 2019-2020: 1. Reduced marginal fiscal stimulus 2.

31 Risk 4: Fiscal overdrive and growth exhaustion Key risk for : 1. Reduced marginal fiscal stimulus 2. Higher inflation 3. Tighter Fed stance 4. Wider deficit 5. Higher long-term borrowing cost 6. More protectionism

32 WHERE WILL THE DEMAND COME FROM?

33 Strength of demand is setting new norms Room nights per capita, US Annual room nights Q2: 3.8 room nights per capita Note: Seasonally adjusted Source: STR; Tourism Economics Oxford Economics

34 But has settled into strong correlation with GDP Room demand and GDP % change 10% 8% 6% 4% 2% GDP Demand 4.0% 2.5% 1.6% 2.6% 2.6% 2.1% 0% -2% -4% -6% -8% Note: Real GDP. Source: STR; BEA; Tourism Economics Oxford Economics

35 Lodging has gained wallet-share among consumers Consumer spending, US Index (Dec. 2011=100) Growth 2011 to June 2018 Lodging (46.2%) F&B (40.6%) Recreation services (35.8%) Consumer spending (29.4%) Air (24.2%) Motor vehicle fuel (-15.8%) Note: Data is nominal, three-month moving average, seasonally adjusted and extends through June Source: Bureau of Economic Analysis; Tourism Economics Oxford Economics

36 Hospitality is leading job growth Employment by Industry in Broward County 2007= Accomm and FS Total Source: BEA, BLS, Tourism Economics Oxford Economics

37 and income growth too Earned Income by Industry in Broward County 2007= Accommodation Total Source: BEA, BLS, Tourism Economics Oxford Economics

38 All while the Broward County economy leads the US Total Employment 2010= Broward County Florida United States Source: BEA, BLS, Tourism Economics Oxford Economics

39 Further demand gains anticipated as GDP accelerates Oxford Economics

40 Room supply appears to be peaking below prior cycles Oxford Economics

41 Market-level supply pressures are beginning to ease Oxford Economics

42 Sources of new demand International markets Groups Vacation starved Americans Seasoned travellers

43 Has there been a Trump Slump in visits to US? Oxford Economics

44 Source: Pew Research Center

45 A comparative view of US inbound performance in 2017 International visits to the US by region NTTO Jan-Sep 2017 % change and TE full year 2017 estimates 10% 5% 3.9% 1.6% 0.4% 0% -5% -4% -3.2% -6% -6.2% -10% -15% -14% -20% 2.6% 4.1% 0.1% -2% -2% -2% NTTO TE -25% -30% -28% -35% -32% Total Overseas Mideast Africa LATAM Europe Oceania Asia Source: NTTO, Tourism Economics

46 The dollar eased, supporting growth

47 Momentum is carrying over into 2018 Non-citizen arrivals to the US by port of departure January-June 2018, YTD % change Germany Africa Japan Asia Middle East S Korea Overseas United Kingdom Total Europe Australia Canada France Mexico China Brazil -10% -5% -4% 2% 2% 3% 3% 3% 4% 4% 5% 6% 6% 7% 8% -15% -10% -5% 0% 5% 10% 15% 20% Source: APIS, Banco de Mexico, Statistics Canada 18%

48 International exposure across top US markets

49 Opportunity: New traveling households Added households with income > $35, vs Germany Spain Australia Venezuela Canada Italy Argentina France UK Mexico South Korea Russia Brazil USA India China million Millions Source: Tourism Economics,constant 2015 prices Oxford Economics

50 New traveling households ($100k threshold) Added households with income > $100, vs Argentina Venezuela Mexico Brazil Russia Spain Italy South Korea France Canada India Australia Germany UK China USA Millions Source: Tourism Economics,constant 2015 prices

51 Sources of new demand International markets Groups Vacation starved Americans Seasoned travellers

52 Prospects for group are encouraging Group Room Demand and CAPEX % change 10% 5% Real capital investment 0% -5% Group room demand -10% -15% -20% Source: STR, BEA Oxford Economics

53 Sources of new demand International markets Groups Vacation starved Americans Seasoned travellers

54 Target opportunity: 705 mn unused vacation days Days Away on Vacation Annual vacation days per worker Long-term average: 20.3 days Vacation days Long-term average Note: Estimates are based on survey results for 2013 to 2017 (GfK and Beresford Research). Estimates for earlier years are based on analysis of BLS data. Source: Oxford Economics

55 Reversal in trends for both short and longer trips Full and Partial Week Vacations 24-month moving avg, % of employed adults Full week - out all week for vacation Partial week - out part of week for vacation Sources: Oxford Economics analysis of BLS survey results

56 Sources of new demand International markets Groups Vacation starved Americans Seasoned travellers

57 All age groups are spending more on travel, led by seniors Recent household spending on lodging by age Difference relative to long-term average 16% 20% 23% 24% 12% 8% 8% 1% All households Under to to to to to Household age brackets Note: Recent constant dollar spending (2013 to 2015) relative to long-term average for the same age brackets (1984 to 2015). Source: BLS; Tourism Economics

58 Seniors now represent greatest share of households and spending Share of lodging spending by age 60% 50% 2000: 50% 2015: 45% 40% 2000: 35% 2015: 41% 30% 20% 10% 0% 2000: 15% 2015: 13% 55 and over 35 to 54 Under Year Note: Lodging spending is based on recent three-year average (2013 to 2015). Consumer spending represents leisure trips. Source: BLS; Tourism Economics

Key takeaways Improved economy to boost demand Slowdown is likely in H2 Risks are increasing in probability Travel demand opportunities remain solid Demand gains through 2018 and 2019.

59 Key takeaways Improved economy to boost demand Slowdown is likely in H2 Risks are increasing in probability Travel demand opportunities remain solid Demand gains through 2018 and Business and group travel to show life. Travel metrics will soften as the year progresses and into 2019 Watch for policy missteps, wage stagnation, and interest rates. International visitors, groups, vacation trends, and demographics paint a positive picture.

60 August 2018 Tourism Economics / Oxford Economics All data shown in tables and charts is Tourism Economics / Oxford Economics own data, and is copyright Oxford Economics Ltd, except where otherwise stated. To discuss further please contact: Adam Sacks, Tourism Economics / Oxford Economics adam@tourismeconomics.com

Outlook for the Economy and Travel Outlook for the Global Economy and Travel

Outlook for the Economy and Travel Outlook for the Global Economy and Travel Adam Sacks President Tourism Economics @adam_sacks Adam Sacks President Tourism Economics @adam_sacks Outline The Outlook for