Business Irish

Friday 15 December 2017

Tourism success gets 1,000 welcomes

Ross Castle near Killarney, Co Kerry
Ross Castle near Killarney, Co Kerry

Dan O'Bien

The hospitality industry has been doing well of late. Next week, a conference organised by the National Centre for Tourism Policy Studies at the University of Limerick will bring together many people and organisations with an interest in tourism. There will be plenty to celebrate.

Tourism is one of the great home-grown success stories. If it doesn't rival the aircraft leasing industry in terms of innovation, its impact as an indigenous growth industry is unrivalled, particularly in rural areas.

Ireland punches above its weight. The number of international tourists is almost twice the total Irish population, a ratio that is above a majority of European countries, as well as tourism heavyweights such as France and Spain.

Last year, the number of visits to Ireland hit an all-time high of 8.6 million. A new record will be broken this year given the strong growth in the first nine months, which included the peak summer season when the number of overseas visitors increased by 12pc year-on-year.

When spending by foreign tourists is considered, the recent performance has not been quite as good. Last year, a record €4.2bn was spent in the Irish economy by foreign visitors. But this was only a smidgen above the previous peak of 2007 - the great recession led to the sharpest falls ever recorded in Ireland visitor arrivals, and their expenditure.

The rebound in tourism is also to be seen in the closest thing we have to a measure of employment in the sector - the quarterly figures on the numbers working in food and accommodation businesses. They have also reached record levels this year, exceeding 140,000 jobs during the summer for the first time.

Across the eight regions of the country, employment in hospitality ranged from 6pc of all jobs in the mid-east to 9pc in the west, as of the second quarter of this year.

And employment in the sector has been on the rise over the longer term across the country.

Dublin has led the way, with hospitality jobs rising by more than a third between early summer of this year and the same period in 2008. There are now twice as many people working in the sector in the capital compared to 1998, when figures were first compiled.

Nowhere else has done as well but many of the other seven regions have enjoyed double-digit growth since the crash began.

If there is one blemish on the record, it has been a curious decline in hospitality employment in recent years in the southwest.

Looking to the future, foreign arrivals ultimately depend on economic conditions in the tourist's home country. As such, there is a relationship between changes in GDP and tourism. Of particular relevance here is the private consumption component of GDP. It stands to reason that if individuals and households are spending more at home, they will be prepared to spend more abroad.

Given the bulk of Ireland's tourists come from places it has economic ties to - America, Britain and Europe - it is worthwhile taking a look at the economic performance and prospects of our top four markets.

Britain is Ireland's biggest tourist market, accounting for 40pc of arrivals. Numbers dropped sharply after the financial crisis and even now remain below the peak of 2006. But it has been recovering well, in part thanks to relatively solid British economic growth.

Brexit creates a number of challenges for Irish tourism. The weakening of the pound over the past year has made a trip across the Irish Sea more expensive. And the likelihood of higher inflation (as a result of more expensive imports) will reduce the amount British households have to spend, just as it did after the last sterling collapse in 2007-09.

Despite the great uncertainty, UK consumer confidence and spending have been robust post-referendum. For now, many of the negative effects Brexit was meant to bring are most visible in economic forecasts, which usually predict lower economic growth and consumption for 2017 onwards. They suggest a slowdown rather than a recession which seems the most likely scenario given the slow roll-out of changes rather than a big bang-type shock. But for the Irish tourism industry, the exchange rate effect is likely to be strongly negative in 2017.

The United States is the second largest market. Americans are also big spenders in Ireland: on average they spend three times as much as the average British visitor, probably reflecting the fact that their trips were long-haul. Visitor numbers fell during the financial crisis, but have rebounded well. Ireland welcomed a record number of US tourists last year.

The election campaign that ended on Tuesday highlighted a number of structural problems with the US economy. Though by other measures it's doing well: unemployment is low and the economy is growing. Over the past few years, US economic growth has been fuelled by household consumption. There looks to be sufficient momentum in the domestic economy to keep that going.

The election of Donald Trump brings yet another wave of uncertainty, but the near-term impact on the US economy is likely to be limited, one way or the other. Contrary to what is often said, there are no big levers to easily influence the economy under the desk in the Oval Office. Movements in the dollar-euro exchange rate are hard to predict, but sterling-sized falls in the dollar are unlikely. That can only be good news for Irish tourism.

About a third of arrivals into Ireland come from mainland Europe, with France and Germany being the two big markets.

In the past, the number of Germans coming to Ireland has been influenced by the economy at home. Arrivals declined during the German slump in the early 2000s and during the Eurozone crisis. A relatively solid economic performance has caused numbers to surge in the past few years. Economic growth is likely to remain robust, driven by higher private consumption. That's more good news for the sector here.

Growth in French tourism into Ireland has not quite matched Germany's. Nor has its economic growth. Nonetheless, there has been a rise in both measures. There is much pessimism about the French economy, yet it is in fact closer to Germany than that of southern Europe. Modest growth rates look likely to continue.

Tourism has become an important sector in the international economy. Each year there are over a billion tourist arrivals and more than a trillion dollars spent. According to the United Nations World Travel and Tourism Council (UNWTO), its direct and indirect activities account for 10pc of global GDP. The number of people travelling each year has been increasing continually over the past few decades. And the UNWTO predicts it will keep rising in the coming years, especially with more demand from emerging markets. There is lots of opportunity for the sector in Ireland for as far into the future as one can see.

Eurocrats expect us to stay in red a bit longer

Last week the European Commission published its autumn economic forecasts for the EU and its member countries. Its fresh outlook brought little in the way of surprises. The eurocrats expect Europe's plodding growth of recent times - this year included - to continue next year and the year after. Only marginal changes were made to its predictions.

For Ireland, there was also little change. The analysis spoke of "heightened risks", and that didn't include the Trump factor (discussed in my column in the main section of this newspaper).

One figure that did stick out was the Commission's views on the public finances. The Government has budgeted for a tenth straight year of deficit in 2017, but projects that the books will be balanced in 2018. The commission is not so optimistic. It expects an 11th consecutive year in the red.

Sunday Indo Business

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