STR/Tourism Economics Market Forecast Assumptions – August 2024

An extended version of our Market Forecast Assumptions analysis, including an additional five markets, can be found here.

Europe short-term outlook:

Aggregated RevPAR growth for STR’s 31 European markets is forecasted to reach 5.7% in 2024, with growth driven primarily by a gain in average daily rate (ADR) of 3.8%. Year-to-date ADR growth has been fueled by above-average inflation in many regions, as well as the return of both corporate and leisure events.

Three markets are projected for RevPAR declines this year. High supply growth in Gatwick Airport, Manchester Centre, and Dublin has increased competition and led to falling ADR among market hotels.

An incredibly successful UEFA Euros Championship hosted by Germany has led to prominent upgrades to German market RevPAR in 2024. However, with little changed outside of the tournament, 2025 performance expectations have been modestly downgraded to compensate for that stronger-than-expected demand and ADR growth over the event period.

Asia Pacific short-term outlook:

Slower performance in 2023 has allowed for stronger KPI growth in 2024 for the 16 Asia Pacific forecast markets, with RevPAR expected to rise 6.9% this year. As in Europe, ADR (+3.8%) is the primary driver, although unlike European markets rate will continue to push RevPAR in 2025.

Price sensitivity appears in Asia Pacific as well, although for many markets that sensitivity has been realized in 2024, with expected improvement next year. Auckland has struggled most, with a 5.2% RevPAR decline penciled in for 2024 amid an economic downturn, challenging offsets caused by the 2023 FIFA Women’s World Cup, and record-high supply growth. Sanya has likewise suffered this year, with a nearly 16% decline in RevPAR forecasted as Chinese travelers increasingly choose international leisure destinations.

Middle East short-term outlook:

RevPAR is forecasted to increase 3.7% for our four Middle East forecast markets in 2024, although unlike other world regions, growth is nearly equally balanced between occupancy and ADR. Extreme supply growth remains the crucial consideration for Saudi Arabian markets in both short- and long-term, as the Kingdom continues to push ahead with its ambitious Vision 2030 initiative. While aggregated RevPAR for the two markets will increase year over year in 2024, the longer-term outlook is much weaker as the markets absorb new rooms.

Conversely, supply growth has finally moderated in the United Arab Emirates, allowing for short- and longer-term RevPAR growth. After years on the back burner, Abu Dhabi is now the nation’s standout market, as limited new supply and rising popularity among corporate and leisure travelers have helped drive both demand and rates.

Global travel and tourism trends:

Global inbound arrivals are anticipated to exceed pre-pandemic levels by 1.5% this year, marking the first year of global "recovery." Even with a moderate economic backdrop and elevated interest rates, consumers remain committed to prioritizing travel. The ECB's rate cut in June, along with the FED's subtle hint that it may lean toward lowering interest rates in September, indicates that income pressures will ease in the second half of the year, supporting continued discretionary spending on travel.

Europe is on track to surpass pre-pandemic levels in 2024. However, recovery in Eastern Europe continues to trail behind Western Europe, as the ongoing conflict in Ukraine hinders progress in the sub-region. Mediterranean destinations such as Spain, Portugal, and Albania achieved full recovery last year, and this momentum is expected to continue. North America has experienced a slight downgrade in forecast visitor arrivals this year, bringing it just below pre-pandemic levels, with the strong U.S. dollar discouraging some travel to the U.S. In the Middle East, despite strong performance in Saudi Arabia, a weaker-than-expected H1 for Dubai and ongoing geopolitical tensions have led to a downgrade in the region's outlook. The Asia-Pacific region remains behind the global recovery pace, with weak outbound travel from China slowing progress, although Indian arrivals are currently driving short-term recovery in the region.

In the hope of seeing continued recovery across all regions globally, some factors have and will continue to play an important role. Major sporting events like the Euros and the Olympics served as significant tourism drivers in Europe during the summer of 2024, particularly boosting visitor numbers in the host nations - Germany and France. Additionally, Taylor Swift's Era’s tour, has had a massive impact everywhere it has been thus far, and will continue until year-end. It is expected to draw huge demand in remaining destinations across North America.

The increase in outbound travel demand from China must be catered for as it is key for the achievement of global tourism recovery. The restoration of air capacity and international routes from China has been slow but steady. This, along with retaining workers in the industry is vital for handling the rising demand for Visas and Passport renewals, allowing China to reconnect with the world.

Moreover, de-escalation between Israel and neighboring nations like Lebanon, Iran, and Palestine, is crucial for the region's tourism recovery as it would enhance safety, stability, and attractiveness for international travelers.

Finally, with the U.S. set to lower interest rates in September, the U.S. Dollar is likely to weaken as a result. This depreciation will make travel to the United States more affordable for international visitors, potentially boosting tourism by enhancing the country's attractiveness as a travel destination.

Global macroeconomic trends:

We've revised our 2024 GDP growth forecast upward by 0.1 percentage points to 2.7% and lowered our 2025 estimate by the same margin, now also at 2.7%. Despite concerns about a potential U.S. recession, we believe these fears are overstated and that recent data suggests a more orderly and benign slowdown in growth. In light of this, our adjustments to the global GDP growth projections have been minimal, reflecting a stable outlook for the world economy.

In the U.S., we’ve raised our forecast for GDP growth by 0.3ppts to 2.6% for 2024 and by 0.1ppt to 1.9% for 2025 as Q2 GDP growth and prospects for business spending was stronger than previously thought. Despite our belief that peak unemployment (of 4.3%) has yet to occur this year, this doesn’t indicate a reason for panic as the cause of this is that trend job growth won't be sufficient to absorb the increase in labor supply, which is being driven by strong immigration.

In China, we've kept our GDP forecast at 4.8% for 2024 and 4.1% for 2025. We still assume headwinds from sluggish consumer spending, rising tariff risk, and deflationary forces will likely more than offset stimulus tailwinds in the near term. Recent policy meetings suggested that the policy bias is towards more easing for the rest of the year amid growing signs that the domestic economy is decelerating quickly and past stimulus has not transmitted as effectively as hoped.

We've significantly cut our H2 2024 and H1 2025 Eurozone growth forecasts to reflect widespread signs that Eurozone growth momentum is faltering. While these revisions didn’t affect our Eurozone GDP growth forecast for 2024, which is unchanged at 0.8%, the downgrade is more visible next year. Growth has been uneven across countries and has extensively relied on net exports as domestic demand has remained subdued. At the country level, Germany was the main disappointment, whereas Spain continued to be the positive outlier.

Eurozone inflation came in stronger than expected in July, rising by 0.1ppt to 2.6% y/y. Core inflation was stable at 2.9% for a third consecutive month. As such, the debate about a September rate cut remains open. We continue to think the ECB will agree to a second 25bps cut in September.

In the U.K., a CPI inflation rate of 2.2% y/y in July resulted in The MPC narrowly voting to cut Bank Rate by 25bps to 5% at its August meeting. However, many within the committee believe risks to inflation are skewed to the upside. Consequently, we think rate cuts at successive meetings are unlikely and expect Bank Rate to stay at 5% in September.

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