Tourism and the Economy in France

The Times reports on French tourism:

Au revoir tourism: the holiday is over for France

Spending the first weekend of August on the roads along the French Mediterranean coast is not usually a pleasant experience. In a record-breaking heatwave, with three impatient children in the back of the car, when the weekend in question happened to coincide with the start of the French summer holidays on August 1, it seemed prudent to expect the worst. But this year, the anticipated nightmare turned into a pipe-dream. The motorways were almost empty. The toll plazas were uncongested. The traffic everywhere was “fluide”, to use the wistfully evocative French word favoured by the electronic noticeboards on the auto-routes. Even the legendary bottlenecks in the last few miles leading to St Tropez were notable by their absence. (I hasten to add that I was paying only a fleeting visit to some friends near St Tropez, rather than staying among the frivolous playboys and starlets.) In all, it took us three-and-a-half hours to make the 250-mile trip from our holiday home in Narbonne to St Tropez. Based on the experience of previous summers, we had budgeted a full day. Not only that, but a quick internet search secured us rooms at a top-rated hotel on the beach for the sort of price one might have paid in Britain for a Butlin’s. And a restaurant famous for clients famous for being famous, provided us a table for 12 at the drop of a hat right next to where one of the said celebrities was duly holding court.

What conclusions should we draw from the eerie emptiness this summer in the South of France, as in many other tourist destinations across Europe? Since tourism is by far the biggest single industry in France, as well as in Spain and Italy, this is not just a matter of idle curiosity, especially since the continental European economy is mired in its longest recession in living memory.

The absence of Americans in Europe has been much discussed, not least in Libération, the fervently anti-American newspaper of the Left, which recently ran a three-page article noting the mysterious disappearance of US tourists from France and giving warning, without any irony, of the economic losses this could inflict on French workers.

But the decision of so many Americans to stay at home this summer, whether prompted by post-Iraq resentment of all things French, or by the broader hysteria about terrorism which has washed out the brains of previously rational Americans since September 11, cannot explain the sudden surfeit of beach umbrellas and the palpable thinning-out of the tourist crowds in less fashionable corners of France, such as here in the Languedoc, where American accents were never heard at the best of times. Neither can geopolitical confrontations account for the sudden financial crisis revealed at Disneyland Paris last month, since the company’s financial planning can never have depended on coals-to-Newcastle American tourism to a Disney theme park in France.

No, the real mystery of the Mediterranean this year is not the sudden aversion of Americans to Old Europe. It is the disappearance of the Germans, Belgians and Dutch — and even the French themselves, apparently keeping away from their favourite beaches and other holiday haunts. There are several possible explanations, each of which tells us something interesting, and potentially troubling, about France and Europe, not only today but also in the months and years ahead.

• The first and most important explanation is the state of the European economy. Germany and Italy are in outright recession, with national output falling and unemployment heading inexorably upwards. Germans are by far and away the Continent’s most important foreign travellers — not only because of Germany’s large population but also because Germans take more foreign holidays per head than any other nation. But the German travel industry is suffering its deepest decline of the post-war era and industry analysts see little prospect of improvement as long as the present fears about employment and prosperity remain. The same collapse of confidence is increasingly apparent in Italy and France. No doubt this is in part connected with the troubles of the tourist industry, which could significantly reduce economic growth and employment prospects in France, Italy and Spain this summer.

  There seems to be little prospect of improvement in the near future. On present trends, continental Europe is likely to remain the slowest-moving region of the world economy, lagging well behind not only America, Britain and Asia, but also Japan, in the year ahead and quite possibly throughout the next decade. With economic policy paralysed by the abolition of national currencies and the rules of the Maastricht treaty, the main hope for any improvement in Europe’s economic prospects next year rests on a strong recovery in the US and Britain.

  Despite, or maybe because of, the euro project, Europe is now more economically dependent on America than ever before.

  The only other hopes for better times ahead in Europe appear to rest primarily on the economic reforms announced by the Governments in Germany and France. But reducing pensions or restricting job protection makes consumers even gloomier in the short term. Moreover, the social conflicts triggered by reforms are far from over. The French Government may have compromised its way through a wave of public sector strikes in the spring, and German unions may have suffered some minor defeats, but newly elected union leaders are making clear that the main battles over economic reform still lie ahead.

  These battles will not make European consumers any more confident. Nor will they increase Europe’s appeal as a tourist destination. Indeed, one of the localised reasons for the collapse of tourism in many parts of France this summer has been the cancellation of almost all the country’s arts festivals as a result of actors’ and musicians’ strikes.
  
  

• A second reason for the decline in tourism is the euro. The single currency was supposed to be a massive boon for tourists and it certainly has made travelling across borders more convenient. But this benefit has been more than offset by several other effects. Tourism is a notoriously price-sensitive business and the rise of the euro in the past two years has made the Continent more expensive. At the same time, the introduction of euro notes and coins last year caused a tremendous burst of inflation in restaurant and hotel costs, which stunned almost all travellers in Europe, even though it hardly registered in official statistics for reasons that remain obscure. The combination of these currency and inflation effects has not only made Europe less attractive to foreign travellers, but also encouraged tourists from the eurozone to take cheaper holidays in America. Britain and the Far East.
  
  
• A third source of pressure on traditional tourism in Europe comes from enlargement to the East. Croatia has suddenly become the hottest Mediterranean destination, while Austrians and Germans are travelling to Slovenia or Hungary instead of Italy and Spain.
  
  
• Finally and most controversially, there is global warming. Experts may say that the greenhouse effect has had nothing to do with this year’s torrid weather, which has provided Northern Europeans with all the sun they could wish for without moving from home. After all, the summer of 2002 was one of the coldest and wettest in the history of Europe. But common sense suggests that a new instability in the climate has become a fact of modern life. The predictability and moderation of the western Mediterranean’s summer weather may be a thing of the past — a worrying thought advanced last week in a Figaro front-page article entitled “Is France still a temperate country?”

Even though America appears to be the main culprit responsible for global warming, Europe may well turn out to be a greater victim. For Europe’s climate is dependent on the complex weather patterns created by the Gulf Stream, which could be one of the first casualties of global warming. Meanwhile, the economic and cultural reliance on a temperate climate is much greater in Europe than in the US: Paris, Rome, Madrid and even London were not built around air-conditioning and indoor malls in the same way as Los Angeles, Houston, Washington or New York.

If the global climate does continue to become more extreme and unstable, it will wreak havoc on patterns of travel for years to come. Still, those of us who decide to stick to our old holiday destinations will be able to take comfort in quieter beaches and uncongested roads.

Spain upstages France as Briton's favourite holiday destination

Spain surpassed France as Britain’s favourite holiday destination in 2002 for the first time since 1988. Spain attracted 12.6 million UK visitors in 2002, a 7 per cent increase on 2001, while the number of visitors to France fell from 12 million to 11.7 million.

In recent years Spain has spent millions of pounds to improve its image and facilities, while tourism has also been boosted by the proliferation of cheap flights to Spanish cities.

Tour operators have blamed the attitude of the French towards holidaymakers as unhelpful, compared to other European destinations.

This anti-French trend has also been attributed to political concerns, as a result of strained Anglo-French relations over the war in Iraq and Spain’s support of the coalition action.

Mainstream travel companies that specialise in France admit that bookings have dropped but relate this to general fears over the war rather than a specific boycott of France.

In each of the past two years, 10 per cent of Americans taking holidays overseas went to France, down nearly 10 per cent on 2000.

A Florida journal urged its readers not to go to France but to spend their money in the US to help the economy. However, with a total of 76.7 million visitors in 2002, France remained the world’s most popular destination.

The Times reports on the French Economy:

Eurozone in the red as French economy shrinks

A SURPRISE steep economic downturn in France has pushed the entire eurozone economy into the red for the second quarter of the year.

The poor performance saw Continental bond prices rise and European share indices fall. The euro dipped briefly below $1.11 against the US dollar as economists cut their hopes of modest growth in the single currency area over the year to less than 0.4 per cent.

The French economy shrank by 0.3 per cent between April and June, a much weaker performance than initially forecast by analysts. Only a month ago, Jean Pierre Raffarin, France’s Prime Minister, estimated that the country’s economy had expanded by 0.1 per cent during the three months.

The setback completes a dismal series of falls among all the main economies of the single currency zone except Spain.

Eurostat, the EU’s statistical agency, estimated last week that output had been stationary in the eurozone as a whole during the April to June period. But it was forced to signal yesterday that it would be revising this, probably to a 0.1 per cent fall.

Eurozone output grew by 0.1 per cent between January and March, with the second quarter fall eliminating any evidence of economic recovery during the first half of 2003.

The City had been expecting Europe’s second largest economy to register flat growth in the second quarter, and the disappointing figures added to the gloom over propects for the eurozone. France accounts for about a quarter of eurozone production.

Jean Claude Trichet, the Governor of the Bank of France, who is about to take over as President of the European Central Bank, is likely to come under immediate pressure from Paris to engineer a series of cuts in European Central Bank interest rates during the autumn.

France had been judged the most successful of the big three member economies from the launch of the euro because it joined at what was taken to be a favourable exchange rate. But recently some of France’s biggest companies have been forced to retrench after a period of ambitious expansion.

Germany, Italy and the Netherlands are already in recession, and France would have become the fourth eurozone economy to follow suit had it not been for a modest rise in output in the first quarter of the year. Economists define a recession as two consecutive quarters of falling output.

France saw output drop in the fourth quarter of 2002, but rise in the first three months of this year. Even the first-quarter expansion, initially estimated at 0.3 per cent, has now been downgraded to 0.2 per cent.

The breakdown of the data showed widespread weakness in the French economy. Corporate investment fell, reflecting weakness in the business sector, and exports also came under pressure following the recent rise in the euro. Household consumption dropped 0.2 per cent on the quarter. Analysts estimated that the recent spate of public sector strikes may have accounted for a third of the output fall.

Analysts said there was likely to be a rebound later this year, after a good showing by industrial production during July, but estimates of growth for the year as a whole are now being cut.

Julian Callow, of Credit Suisse First Boston, said: “Leading and coincident indicators suggest an improvement in growth in the second half for both the euro area and France, but any acceleration will probably be fairly modest.”

August 26, 2003

City fears for growth in Europe as US and UK shine

CONCERN is mounting in the City that European companies will not share in the global profits upturn, casting fresh doubt on prospects for growth on the Continent. New figures show that analysts are still downgrading their earnings forecasts for European quoted companies, but are increasingly hopeful about the outlook for the UK and the US.

In America the improvement in market sentiment over the past month has been the most marked for four years, with analysts increasingly confident that the US is over the worst.

Statistics compiled by the investment bank Dresdner Kleinwort Wasserstein (DKW) show that, over the past month, analysts have downgraded their 2003 European earnings forecasts by 0.4 per cent. For next year forecasts have been downgraded by 0.3 per cent.

This compares with a 0.9 per cent upgrade to 2003 earnings for the UK and a 0.8 per cent upgrade to US earnings. The upward revision to 2003 US earnings over the past month has been the largest since June 1999 — suggesting that analysts are now more confident about American prospects than at any other time during the bear market.

The bearish forecasts were given credence in Paris yesterday, where the Bank of France gave warning that the economy could falter if firms fail to improve their productivity.

The French economy contracted by 0.3 per cent in its second quarter but has so far escaped recession, defined as two quarters of negative growth.

The central bank said that growth and job creation depended on controlling production costs. France’s gross domestic product rose faster than the rest of the eurozone between 1997 and 2002, because of improved competitiveness, but since then productivity growth has been weak, the Bank of France said.

The DKW analysis also looks at the ratio of upgrades to downgrades. In the US last month, analysts posted 2,699 earnings upgrades, a number that has been exceeded only once before. Earnings upgrades in the US now outnumber downgrades by a ratio of almost two to one.

Andrew Lapthorne, of DKW, said: “There is no denying that the US is the engine of the current upswing in global earnings momentum. Europe continues to lag.”

In global equities as a whole, upgrades are outnumbering downgrades for the first time since June last year. Last month was the strongest for global revisions and upgrades since May 2000.

The revision to global earnings estimates would have been even greater had it not been for the drag of the eurozone. Mr Lapthorne said: “Globally, 20 out of 30 sectors are experiencing more upgrades than downgrades. In Europe, this number drops to only ten.”

The DKW analysis is the latest sign that the City is becoming increasingly despondent about short-term prospects for the eurozone. With Germany, Italy and the Netherlands all in recession and France seeing output drop, there is a hardening belief in the City that Europe will lag behind other major regions this year.

This growing gloom has taken its toll of the euro, which last week suffered its largest weekly loss in more than two years against the dollar.

In New York yesterday the dollar initially continued its advance against the euro and the pound, helped by some favourable news about the housing market. The currency markets were subdued, largely because of the UK Bank Holiday, but in New York, the euro closed virtually unchanged at $1.0883 and the pound was down by 0.2 per cent at $1.5711.