California Travel & Tourism Outlook April 2018
California travel forecast overview Total visitation to California is forecast to grow 2.9% in 2018, following a 2.0% expansion in 2017. The near-term outlook for California travel has been slightly downgraded by 0.2%pp. International visits to California from overseas will slow from 4.5% in 2017 to 4.3% in 2018, and we expect similar growth to continue each year through 2022. Mexico is expect to recover in 2018 and grow by 3.2% after a 3% decline in 2017, as a result of tensions between Mexico and the US, as well as a decrease in demand due to unfriendly immigration policies. Meanwhile, YTD visits from Canada suggest that robust and strong recovery from a decline in 2016 is continuing into 2018. Canadian arrivals grew 7.5% in 2017 and are expected to slow to 3.2% in 2018. Domestic visitation will expand 2.8% in 2018 after a weaker 2017, which saw 2.0% growth. Overnight travel is expected to accelerate to 2.6% in 2018, before returning to below 2% growth in 2020. Domestic business travel is expected to outperform the domestic leisure market this year on strong growth in business investment. Growth in visits to California is easing from robust rates seen during the recovery after the Great Recession. Domestic demand drivers remain strong, and long-term growth in U.S. travel to the state will track close to 2.5-3.0%. 2
Economic overview YTD data suggest healthy international inbound travel to California in the first three months of 2018. Solid macroeconomic environment, which includes steady global growth and a weaker US dollar, will help overseas arrivals grow 4.3% in 2018. Uncertainty surrounding outcomes of the current administration s immigration policies and trade restrictions present downside risks to our forecasts. Record consumer confidence and healthy employment should support consumer spending, though modest real income growth will be a constraint. We are expecting strong business investment in 2018, which should help prop up business travel. Over the forecast horizon, the business travel segment is expected to moderate. We expect real US GDP to grow 2.8% in 2018, supported by a solid labor market, firm business investment, and a strong global activity. 3
California travel forecast summary California Tourism Summary (Annual % change) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total Visits 3.1% 5.6% 3.5% 4.8% 1.9% 2.0% 2.9% 2.7% 2.3% 2.7% 2.6% Domestic Total Visits 3.1% 5.6% 3.4% 4.9% 1.9% 2.0% 2.8% 2.6% 2.2% 2.5% 2.5% Leisure Visits 4.9% 6.8% 4.1% 5.3% 2.2% 2.2% 2.8% 2.6% 2.5% 2.7% 2.7% International Total 3.5% 4.5% 5.1% 3.6% 1.6% 1.3% 3.7% 3.9% 4.3% 4.2% 4.2% Overseas 0.8% 6.7% 9.9% 5.7% 2.2% 4.5% 4.3% 4.2% 4.3% 4.1% 4.0% Mexico 5.7% 3.4% 1.3% 3.0% 1.9% -3.0% 3.2% 3.8% 4.5% 4.6% 4.5% Canada 4.6% 1.6% 3.7% -2.8% -2.4% 7.5% 3.2% 3.0% 3.1% 2.8% 2.9% Total Expenditures ($ billions) 108.9 109.7 117.4 121.9 126.3 132.4 139.4 146.0 152.4 159.2 166.4 % change 4.2% 0.7% 7.1% 3.8% 3.6% 4.8% 5.3% 4.7% 4.4% 4.4% 4.5% Domestic 89.3 88.3 94.3 97.5 101.0 105.9 111.9 117.2 122.1 127.3 132.8 % change 3.9% -1.1% 6.8% 3.4% 3.7% 4.8% 5.6% 4.7% 4.2% 4.2% 4.4% International 19.6 21.4 23.1 24.4 25.3 26.5 27.5 28.8 30.3 31.9 33.6 % change 5.3% 9.1% 8.3% 5.6% 3.4% 4.7% 4.1% 4.6% 5.3% 5.1% 5.3% Source: Tourism Economics; DKSA, TNS Global (domestic); CIC Research; OTTI (international); Dean Runyan (expenditures) 4
California travel forecast summary Annual Person Trips to California (Millions) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total 230.0 242.8 251.3 263.4 268.4 273.7 281.6 289.2 296.0 303.8 311.7 Business 46.6 47.1 47.5 48.9 49.4 49.8 51.4 52.8 53.5 54.6 55.5 Leisure 183.4 195.7 203.8 214.5 219.1 223.9 230.2 236.4 242.5 249.3 256.2 Domestic Total 215.1 227.2 234.8 246.3 251.1 256.1 263.4 270.3 276.3 283.3 290.2 Business 42.6 42.9 43.0 44.3 44.7 45.2 46.6 47.9 48.3 49.2 49.9 Leisure 172.5 184.2 191.8 202.1 206.4 210.9 216.8 222.4 227.9 234.1 240.4 Day 113.3 120.1 124.4 131.2 133.3 136.9 141.0 145.0 148.9 153.5 158.0 Overnight 101.8 107.1 110.5 115.2 117.8 119.2 122.3 125.3 127.4 129.8 132.3 International Total 15.0 15.7 16.5 17.1 17.3 17.6 18.2 18.9 19.7 20.6 21.4 Overseas 6.2 6.6 7.3 7.7 7.8 8.2 8.6 8.9 9.3 9.7 10.1 Mexico 7.2 7.5 7.6 7.8 7.9 7.7 8.0 8.3 8.6 9.0 9.4 Canada 1.5 1.6 1.6 1.6 1.5 1.7 1.7 1.8 1.8 1.9 1.9 Business 4.0 4.2 4.4 4.6 4.7 4.6 4.8 5.0 5.2 5.4 5.6 Leisure 11.0 11.4 12.0 12.4 12.7 13.0 13.5 14.0 14.5 15.2 15.8 Source: Tourism Economics; DKSA, TNS Global (domestic); CIC Research, OTTI (international); Dean Runyan, CIC Research (expenditures) 5
California travel forecast summary Forecast Comparison Percentage Point Change in the Forecast, May 2018 versus Feb 2018 Vintage 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total Visits 0.0 0.0 0.0 0.0 0.0 0.1 (0.1) (0.2) (0.4) (0.3) 0.0 Domestic Total Visits 0.0 0.0 0.0 0.0 0.0 0.0 (0.2) (0.2) (0.4) (0.3) 0.0 Leisure Visits 0.0 0.0 0.0 0.0 0.0 0.1 (0.3) (0.5) (0.5) (0.4) 0.0 International Total % change 0.0 0.0 0.0 0.0 0.0 0.9 0.2 (0.2) 0.0 (0.0) 0.0 Overseas 0.0 0.0 0.0 0.0 0.0 1.6 0.1 0.1 (0.0) (0.1) 0.0 Mexico 0.0 0.0 0.0 0.0 0.0 0.0 0.2 (0.5) 0.0 0.0 0.0 Canada 0.0 0.0 0.0 0.0 0.0 2.0 0.0 0.2 0.2 (0.1) 0.0 Total Expenditures % change (2.8) (2.3) 4.5 (0.6) 1.4 2.0 0.5 0.1 0.2 0.2 0.0 Domestic % change (1.9) (3.9) 6.1 (0.8) 1.9 2.0 0.8 (0.0) (0.1) 0.0 0.0 International % change (7.1) 5.0 (2.8) (0.1) (0.5) 2.1 (0.6) 0.4 1.2 1.0 0.0 Source: Tourism Economics 6
7 California Travel Outlook SUMMARY
California underperforms US in room night demand California underperformed the nation in room demand growth in the first three months of 2018. Room demand grew 2.3% in March 2018 compared to the same period previous year. Occupancy rates in California hotels increased in the first three months of this year compared to the first three months of 2018. Growth in YTD average daily room rate was faster than in the nation and but slower than in the Pacific US. APIS air passenger data through March 2018 shows solid growth across top foreign source markets to the U.S. While Brazil has surpassed China by quite a margin, Germany and Japan have posted year-to-date declines. 8
Total visits expected to pick up in 2018 Total demand growth for California will pick up from 2.0% in 2017 to 2.9% in 2018 and 2.7% in 2019. Growth will average close to 2.6% through 2022. While there are no signs of Middle East recovery, both Australia and Mexico are expected to grow in 2018. Growth from Mexico will outpace both overseas and domestic travel to California by 2020. Strong domestic fundamentals continue to support travel demand. Growth in the business segment will outpace growth in the leisure segment in the near term. By 2020, we expect this trend to return to its historic trend. 9
California Travel Outlook DOMESTIC FORECAST 10
Business and leisure travel On the domestic front, growth in both business and leisure travel segments will outperform that of the U.S. in the near term. In 2018, we expect business investment and exports to be strong engines of growth while consumer spending trends will reflect a mature economy. 11
Day and overnight travel Our outlook for day visitation has been slightly downgraded on higher gas prices. Growth of close to 4.0% in day visits is expected in 2018. A slowdown in pace of growth is expected through the end of the forecast period. Nonetheless, day visitor growth will exceed the overnight segment growth over the next five years. Domestic visitor spending will improve to 4.7% in 2018 from 3.7% in 2017 as lodging costs continue to rise and inflation begins to pick up on the back of the Fed s gradual interest rate tightening cycle. Longer-term, growth in domestic expenditures will average around 4.3%, which is an upgrade compared to our previous outlook. 12
Domestic forecast growth Domestic Annual Person Trips to California (Annual % change) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total 3.1% 5.6% 3.4% 4.9% 1.9% 2.0% 2.8% 2.6% 2.2% 2.5% 2.5% Business -3.7% 0.8% 0.3% 2.8% 1.0% 1.1% 3.2% 2.6% 1.0% 1.7% 1.4% Leisure 4.9% 6.8% 4.1% 5.3% 2.2% 2.2% 2.8% 2.6% 2.5% 2.7% 2.7% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Day 3.4% 6.1% 3.6% 5.4% 1.6% 2.7% 3.0% 2.8% 2.7% 3.1% 2.9% Overnight 2.8% 5.2% 3.2% 4.2% 2.3% 1.2% 2.6% 2.4% 1.7% 1.9% 1.9% (Annual % change) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Drive -0.5% 8.0% 3.4% 5.0% 1.3% 1.8% 2.6% 2.4% 2.1% 2.5% 2.4% Fly 31.2% -8.7% 3.5% 3.8% 6.6% 3.6% 4.5% 4.2% 3.2% 3.1% 3.0% Gateway 3.2% 2.6% 3.1% 2.2% 1.5% 0.8% 2.5% 2.4% 3.0% 2.9% 2.8% Non-Gateway 4.0% 3.7% 4.9% 4.7% 2.6% 2.4% 2.5% 1.9% 1.8% 1.5% 1.5% Paid Accommodation 2.6% 4.3% 3.0% 3.5% 2.2% 1.3% 3.0% 3.2% 1.9% 2.0% 2.0% Non-paid 3.1% 6.9% 3.5% 5.9% 2.5% 1.0% 1.9% 0.7% 1.3% 1.5% 1.8% Source: Tourism Economics, TNS Global, STR Domestic Person Trips to California Gatew ay is defined as visitation to one or more of the follow ing metropolitan areas: San Diego, Anaheim-Orange County, Los Angeles, San Francisco Bay Area; Non-Gatew ay is defined as visitation to one or more non-gatew ay destinations. 13
Domestic leisure forecast growth by market Annual Domestic Leisure Trips to California (Annual % change) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total 4.9% 6.8% 4.1% 5.3% 2.2% 2.2% 2.8% 2.6% 2.5% 2.7% 2.7% California 4.9% 7.6% 4.4% 4.7% 2.1% 2.0% 2.7% 2.3% 2.3% 2.7% 2.6% Primary Markets 4.4% 6.6% -1.4% 4.5% 3.9% 3.2% 3.3% 4.2% 3.0% 2.7% 3.0% Arizona 5.4% 6.4% -7.5% 1.4% 2.7% -0.2% 3.3% 4.2% 3.0% 2.4% 3.0% Nevada 2.4% 9.8% 2.0% 6.0% 4.7% 5.3% 3.5% 4.3% 2.9% 2.8% 2.9% Oregon 10.7% 4.6% -3.6% 6.2% 5.5% 4.6% 3.0% 3.8% 2.7% 2.7% 2.8% Washington 3.1% 4.7% 1.6% 6.5% 6.2% 2.7% 3.1% 3.9% 3.0% 2.2% 3.0% Utah 0.4% 5.8% 6.4% 6.1% 3.9% 5.1% 3.4% 4.0% 3.0% 2.9% 3.0% Colorado 5.0% 5.4% 0.9% 4.6% 1.2% 4.8% 3.1% 4.8% 3.5% 3.4% 3.3% Opportunity Markets 3.9% 8.1% 3.6% 6.2% 2.6% 2.3% 3.7% 3.9% 3.3% 3.3% 3.2% Texas 4.0% 9.6% 2.7% 6.6% 2.6% 2.3% 3.6% 4.5% 3.9% 3.8% 3.8% New York 2.6% 7.3% 5.4% 5.8% 1.8% 2.1% 3.7% 3.4% 2.9% 2.9% 2.9% Illinois 5.3% 6.7% 3.0% 5.9% 3.4% 2.4% 3.7% 3.4% 2.9% 2.8% 2.8% Rest of US 6.5% -0.5% 9.5% 12.5% 0.5% 2.4% 2.3% 2.8% 2.8% 2.9% 3.0% Source: Tourism Economics, DKSA, TNS Global Note on volatility of historical data and treatment in forecast: Due to smaller sample sizes and relatively smaller visitor volumes in absolute terms, the historical data of origin markets tends to be more volatile than total visitor volumes. 14
Domestic leisure forecast by market (Millions) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total 172.48 184.24 191.81 202.06 206.40 210.93 216.76 222.43 227.92 234.12 240.37 California 133.63 143.76 150.14 157.21 160.45 163.69 168.12 172.03 176.04 180.77 185.40 Primary Markets 20.43 21.79 21.47 22.45 23.33 24.08 24.88 25.92 26.69 27.40 28.22 Arizona 6.78 7.21 6.67 6.77 6.95 6.94 7.17 7.47 7.70 7.88 8.12 Nevada 4.74 5.20 5.31 5.62 5.89 6.20 6.42 6.69 6.88 7.08 7.29 Oregon 2.44 2.55 2.46 2.61 2.75 2.88 2.97 3.08 3.16 3.25 3.34 Washington 2.34 2.46 2.49 2.66 2.82 2.90 2.99 3.10 3.19 3.26 3.36 Utah 2.38 2.52 2.68 2.84 2.95 3.10 3.21 3.33 3.43 3.53 3.64 Colorado 1.76 1.85 1.87 1.95 1.98 2.07 2.13 2.24 2.32 2.39 2.47 Opportunity Markets 4.42 4.78 4.95 5.26 5.39 5.51 5.72 5.94 6.13 6.33 6.54 Texas 1.80 1.98 2.03 2.17 2.22 2.27 2.36 2.46 2.56 2.65 2.75 New York 1.30 1.39 1.47 1.55 1.58 1.61 1.67 1.73 1.78 1.83 1.88 Illinois 1.32 1.41 1.45 1.54 1.59 1.63 1.69 1.75 1.80 1.85 1.90 Rest of US 14.00 13.92 15.24 17.14 17.23 17.64 18.05 18.54 19.06 19.62 20.21 Source: Tourism Economics, DKSA, TNS Global Annual Domestic Leisure Trips to California 15
Domestic forecast market segmentation Domestic Person Trips to California (Millions) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Drive 184.2 199.0 205.7 216.1 218.9 222.7 228.5 233.9 238.7 244.6 250.4 Fly 30.8 28.2 29.1 30.3 32.2 33.4 34.9 36.4 37.5 38.7 39.9 Gateway 107.5 110.3 113.6 116.1 117.8 118.8 121.7 124.6 128.4 132.1 135.8 Rural/Other 125.4 130.1 136.5 142.8 146.5 150.1 153.8 156.8 159.6 162.0 164.4 Paid Accommodation 69.4 72.4 74.6 77.1 78.8 79.9 82.2 84.9 86.5 88.2 90.0 Non-paid 32.4 34.7 35.9 38.0 39.0 39.4 40.1 40.4 40.9 41.5 42.3 Source: Tourism Economics, TNS Global, STR 16
Domestic market comparisons California has been steadily gaining market share from Texas. By the end of 2022, more than 42% of travel from Opportunity Markets will have come from Texas compared to 40% in 2009. Illinois position has not changed much since 2009; Illinois has counted for 29% of travel from Opportunity Markets and we don t expect this to change much in the next five years. 17
California Travel Outlook INTERNATIONAL FORECAST 18
Strong CA international inbound travel Strong double-digit growth from Korea and China helped counter a 3.0% decline from Mexico in 2018. California ended the year slightly behind the nation, but we expect a reversal of this trend over the forecast horizon. Growth in international inbound travel will surpass 4.0% mark by 2020. Strong growth in arrivals from Asia, and California s key origin markets, Mexico and Canada, will help propel the state to outperform the nation through the forecast period. A weaker dollar and improvements in major source market economies will help make the US a more attractive market for foreign travelers. However, caution remains as uncertainty regarding immigration and international relations continue to linger on. 19
YTD data suggest strong beginning of 2018 APIS YTD data suggest strong international arrivals in the first two months of 2018. Compared to the same period a year ago, total overseas arrivals into LAX were up 6.1%, while Canada was even stronger at 8.4%. We are also seeing strong arrivals from France, Australia, and China, giving support to our growth projections from these origin markets. Both OAG and APIS YTD data show declining visits from Middle East, suggesting that Middle East has not began to recover. The data also shows declines from Germany. However, given the strength of German economy, and the Eurozone in general, we don t expect this trend to continue throughout the rest of the year. 20
Inbound trips forecast growth Annual International Trips to California (Annual % change) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total 3.5% 4.5% 5.1% 3.6% 1.6% 1.3% 3.7% 3.9% 4.3% 4.2% 4.2% China 42.8% 22.1% 21.5% 16.7% 17.1% 11.1% 8.8% 8.2% 8.0% 7.8% 7.7% India 3.0% 26.3% 9.3% 11.2% 9.5% 4.5% 7.0% 6.2% 6.5% 6.1% 6.0% Japan 1.7% -4.0% 7.4% -6.5% 1.9% 1.1% 2.1% 2.0% 1.9% 1.8% 1.5% South Korea -1.7% 0.4% 2.0% 10.3% 7.3% 13.3% 6.0% 6.0% 5.4% 5.5% 5.1% Australia -5.1% 5.9% 6.4% 3.6% -0.9% -0.4% 2.2% 2.0% 1.6% 1.9% 2.0% United Kingdom -3.1% 2.6% 5.3% 2.7% -1.7% 4.0% 2.2% 1.8% 1.8% 2.0% 1.7% Germany -2.4% 5.7% 4.1% -0.6% -2.9% 4.4% 2.1% 2.1% 1.8% 1.7% 1.6% France -16.1% 4.0% 14.7% -0.9% 0.3% 1.6% 3.1% 2.6% 3.0% 2.7% 1.9% Italy -11.4% -4.2% 13.2% -0.8% 0.3% 5.7% 4.5% 2.2% 2.1% 1.6% 1.1% Scandinavia 7.9% 7.0% 11.1% 3.1% 0.9% 1.0% 2.2% 1.9% 2.0% 2.1% 1.9% Brazil 14.2% 12.8% 6.7% 2.0% -18.3% 2.9% 6.2% 5.1% 5.2% 4.8% 4.7% Middle East 26.3% 14.0% 21.9% 4.4% 1.5% -9.1% -3.7% 2.4% 4.5% 4.3% 3.9% Canada 4.6% 1.6% 3.7% -2.8% -2.4% 7.5% 3.2% 3.0% 3.1% 2.8% 2.9% Mexico 5.7% 3.4% 1.3% 3.0% 1.9% -3.0% 3.2% 3.8% 4.5% 4.6% 4.5% Rest of World -4.9% 5.3% 8.5% 8.4% -1.7% 3.7% 3.8% 3.8% 3.9% 3.5% 3.6% Source: Tourism Economics, CIC Research, OTTI Note on volatility of historical data and treatment in forecast: Due to smaller sample sizes and relatively smaller visitor volumes in absolute terms, the historical data of origin markets tends to be more volatile than total visitor volumes. 21
Inbound trips forecast (Thousands) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total 14,973 15,654 16,459 17,058 17,338 17,568 18,218 18,935 19,740 20,573 21,428 China 671 819 996 1,162 1,361 1,512 1,645 1,780 1,922 2,073 2,233 India 190 240 262 291 319 333 356 379 403 428 454 Japan 558 536 575 537 548 554 565 577 588 598 607 South Korea 388 389 397 438 470 533 564 598 631 665 699 Australia 522 553 589 610 604 601 615 627 637 649 662 United Kingdom 635 652 686 705 693 720 736 749 763 778 791 Germany 399 421 439 436 423 442 451 461 469 477 485 France 373 388 445 441 442 450 464 476 490 503 513 Italy 164 157 178 176 177 187 196 200 204 207 210 Scandinavia 225 241 268 276 279 281 288 293 299 305 311 Brazil 183 206 220 225 184 189 201 211 222 232 243 Middle East 198 225 274 286 291 264 254 260 272 284 295 Canada 1,543 1,567 1,625 1,579 1,542 1,657 1,710 1,762 1,816 1,868 1,922 Mexico 7,233 7,477 7,572 7,799 7,949 7,710 7,957 8,263 8,635 9,032 9,442 Rest of World 1,691 1,781 1,932 2,095 2,058 2,135 2,216 2,300 2,390 2,473 2,562 Source: Tourism Economics, CIC Research, OTTI Annual International Trips to California 22
Mexico trips forecast by air and land Mexican Trips to California by Mode (Annual % change) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Border Crossing 5.9% 3.5% 1.0% 3.1% 2.1% -3.7% 3.9% 5.0% 4.6% 4.1% 4.1% Air 2.7% 2.1% 5.3% 2.2% -0.3% 6.0% 2.6% 3.8% 3.2% 2.6% 2.5% Source: Tourism Economics, CIC Research, OTTI 23
California Travel Outlook VISITOR SPENDING 24
A weaker US dollar impacts foreign spending Low fuel costs had supported domestic leisure travel, particularly day trips, while tempering average expenditures. High gas prices and inflation will boost domestic expenditures to the 4.0% range through the forecast. A weaker US dollar will prop up foreign buying power in California. California total visitor spending grew 4.8% in 2017 before ramping up to 5.3% as inflation strengthens and a weaker US dollar induces stronger international spend in 2018. 25 Direct Visitor Expenditures ($ Billions) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total Expenditures 108.9 109.7 117.4 121.9 126.3 132.4 139.4 146.0 152.4 159.2 166.4 % change 4.2% 0.7% 7.1% 3.8% 3.6% 4.8% 5.3% 4.7% 4.4% 4.4% 4.5% Domestic 89.3 88.3 94.3 97.5 101.0 105.9 111.9 117.2 122.1 127.3 132.8 % change 3.9% -1.1% 6.8% 3.4% 3.7% 4.8% 5.6% 4.7% 4.2% 4.2% 4.4% International 19.6 21.4 23.1 24.4 25.3 26.5 27.5 28.8 30.3 31.9 33.6 % change 5.3% 9.1% 8.3% 5.6% 3.4% 4.7% 4.1% 4.6% 5.3% 5.1% 5.3% Source: Tourism Economics, Dean Runyan, CIC Research
Dollar strength has altered spending trajectory 26
Macro forecast assumptions / CA travel model drivers US & GLOBAL ECONOMIES 27
Oxford Economics forecast highlights World GDP growth for 2018 at 3.2% & for 2019 at 3.0%. Global surveys signal that the global expansion may lose momentum in Q2. The global PMI fell sharply in March. The fall highlights the risk that lingering trade tensions could damage confidence and prompt firms and consumers to delay investment and major spending plans. US economy will remain in 2% growth mode with inflation reaching the Fed s 2% target in 2018. Eurozone GDP growth forecast for 2018 nudged down to 2.2%, but the pace is expected to remain well above trend. China s growth picked up markedly in early 2018, which could provide a fillip to global trade growth in the near term. 28
Strongest world post-crisis economic growth in 2018 Global economic growth appears synchronized and solid. Expected 3.2% global GDP growth in 2018 will be strongest performance postcrisis. Synchronized growth in both advanced and emerging economies. Low interest rates / supportive credit, and fastest world trade since crisis. 29
Global growth at best since 2011 30
A slow start to the year, but momentum still solid 31
US economy is ramping up (2.9% GDP growth this year) $1.5 trillion tax cut (TCJA) 32 $300 billion spending bill which will reach up to $1.2 trillion (BBA)
Ongoing rotation to business investment in 2018: US Business investment and exports will be stronger engines of growth. Consumer spending trends will reflect a maturing economy. 33
US companies are finally investing 34
Business investment continues to grow strongly 35
Leading surveys point to ongoing momentum 36
Private sector confidence remains upbeat 37
Labor market dynamics are positive 38
What could possibly go wrong? 39
Risk #1: Trade protectionism 40
Risk #2: Fed s balancing act could prove challenging Recession shading Faster inflation could lead to a more hawkish Fed and a market indigestion. A wider a budget deficit and reduced asset purchases from the Fed could push up long term rates 41
Risk #3: Wages must increase 42
Monitor savings dip : Savings = ½ consumer spending since 2015 US: Consumer spending growth attribution % 6 5 4 3 2 1 0-1 -2 Income contribution Savings contribution Real PCE growth -3 2011 2012 2013 2014 2015 2016 2017 43 Source : Oxford Economics / Haver Analytics
But savings dip driven mostly by lower-income families US: The bottom 60% are driving the savings dip US$ billion 900 800 700 600 500 400 300 200 100 0 Total savings EOP (2015) Top 40%: increased savings Bottom 60%: decreased savings Source : Oxford Economics / Consumer Expenditure Survey Total savings (2016) EOP 44
Risk 4: Fiscal overdrive and growth exhaustion Key risk for 2019-2020: 1. Reduced marginal fiscal stimulus 2. Higher inflation 3. Tighter Fed stance 4. Wider deficit 5. Higher long-term borrowing cost 6. More protectionism 45
The dollar has eased, supporting further inbound gains Value of the US dollar in 2017Q4: 12% stronger than 2014, but just 2.0% stronger than historical average 46
Forecast summary We expect GDP growth to average 2.8%, up from 2.3% in 2017 and 1.5% in 2016. Recent spending data point to a slow start to the year with Q1 2018 GDP growth around 1.5%. Substantial late-cycle fiscal stimulus, which we see contributing 0.7pp to GDP, will push up growth in subsequent quarters. Inflation is expected to reach the Fed s 2% target this year. Although recently threatened tariffs between China and the US pose a growing downside risk to our forecast, we note that tangible actions will take months to materialize and will likely be scaled back significantly. 47
Macroeconomic forecast for the United States While economic momentum has picked up in early spring, trade tensions have escalated. The economy will grow 2.8% in 2018, with a quarter of the growth coming from tax cuts and increased government spending, and the rest coming from solid fundamentals. Key forecast drivers include: 48 Healthy but maturing labor market: solid employment growth and gradually firming wage growth will support household income, confidence and outlays. The unemployment rate will likely fall towards 3.7% this year. Solid consumer spending but lower savings: fiscal stimulus should combine with robust employment growth, gradually firming wages, record confidence levels and low interest rates to support household outlays in the near term. Consumer spending is expected to grow 2.6% in 2018, but we note the risk posed by the savings dip amid widening income and wealth inequality. Strengthening business investment: stronger global growth, the corporate tax cut and a competitive US dollar will support business investment growth of around 6.3% this year, up from 4.7% in 2017. Firming inflation: headline and core personal consumption expenditure (PCE) inflation are expected to reach 2.1% by year end. Policy risks: further trade protectionism will curtail growth, especially if met by retaliation from China and other key partners. Stringent immigration policy remains a risk.
Global growth resilient to protectionist concerns 49 Despite the mounting threat of more protectionist trade measures, we expect the impact on global growth and trade to be mild. Given this, and the still fairly solid underlying economic picture, we have left our global GDP growth forecasts for 2018 and 2019 unchanged at 3.2% and 3.0% respectively. Although economic data in Q1 painted a pretty solid picture, there are signs that the global expansion may lose momentum in Q2. Most notably, the global PMI fell sharply in March, more than offsetting the gains of the previous three quarters or som. Some of the decline may reflect an over-reaction to recent trade threats and could be reversed in April and despite the drop, the surveys still point to strong growth. But the fall highlights the risk that lingering trade tensions could damage confidence and prompt firms and consumers to delay investment and major spending plans. On a more positive note, China s economic growth picked up markedly in early 2018, which could provide a fillip to global trade growth in the near term. Given the better-than-expected start to the year, we have made no change to our 2018 China GDP growth forecast (of 6.4%) despite the probably negative effects of trade measures. Meanwhile, most advanced economies remain in the late expansionary stage of the cycle. And those that show signs of slowing, such as the Eurozone, are doing so from multi-year highs. While we have nudged down our 2018 Eurozone GDP growth forecast slightly to 2.2%, the pace is expected to remain well above trend. For now, we see further solid growth for the world economy this year even in the environment of rising protectionism.
United States Travel Outlook SUMMARY 50
Fuel prices expected to moderate after 2017Q1 spike TPI Components % growth 30.0 20.0 10.0 Forecast Lodging (in blue) 0.0-10.0-20.0 Motor fuel Food away from home (in red) -30.0-40.0 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 2019.1 Source: Tourism Economics 51
Leisure trips leading, business trips rebounding Person Trips % growth 5.0 Forecast 4.0 3.0 2.0 Business Person Trips (red) 1.0 0.0 Leisure Person Trips (blue) -1.0-2.0 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 2019.1 Source: Tourism Economics 52
Travel expenditure to pick up in the short-term Total Travel Expenditures % growth 10 Forecast 5 Fall 2017 (blue) Spring 2017 (red) 0-5 -10-15 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Tourism Economics 53
European inbound travel expected to pick up after 2017 European Inbound % growth 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Forecast Inbound Tourist Arrivals to US EU GDP Growth -4.0% -6.0% -8.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Tourism Economics 54
Asian inbound travel softening Asia Inbound % growth 25% Forecast 20% 15% 10% 5% Asian GDP Growth (blue) 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Tourism Economics Inbound Tourist Arrivals to US 55
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