Summer tourism brightens eurozone economy but cost of living crisis casts shadow

Perched on a cliff on the Amalfi Coast, overlooking the azure waters of the Mediterranean Sea, Hotel San Pietro Positano has its best of the year, when pandemic-weary travelers, especially Americans, flock to Italy.

The hotel, at an average rate of €1,800 per night for a room this summer, saw a pick-up in April and was fully booked by mid-October. “For two years, no one was able to come in,” said co-owner Vito Sink. “Now everyone does.”

The eurozone’s tourism boom, aided by the single currency’s decline against the dollar, is a bright spot in the region that economists will plunge into recession in the second half of this year.

The figures released on Friday show the currency sector economy grew 0.7 percent Between the first and second quarters, a stronger result than forecast by 0.1 percent of economists and a sharp contrast with US GDP figures for the same period, which showed the world’s largest economy. shrink away for the second consecutive quarter.

France, Italy and Spain all posted better than expected numbers as visitors to Mediterranean destinations and enjoying city breaks helped offset the impact of rising energy bills and higher food prices on domestic demand.

Mohamed Ikem, who sells macarons in Laduri, near the Tuileries Gardens in Paris, said most of his customers are English-speaking. “Tourists spend without counting,” Ikem said. “My biggest order was eight boxes of 54 for over €1,000.”

Adama Touré, who manages Le Castiglione – just minutes from the Ritz Hotel in the French capital’s chic Place Vendme, said: “Americans are enjoying themselves in every way . . . I saw a group of them. Just serve a plate of caviar.”

Asset manager Arcano’s chief economist Ignacio de la Torre calculated that nearly a third of Spain’s second quarter growth – which came in at 1.1 percent against just 0.2 percent in the first three months of the year – was driven by tourism.

María Frontera, president of the association of hoteliers on the Spanish holiday island of Mallorca, said the occupancy rate this month reached 93 percent, five percentage points higher than in July 2019, the summer before the pandemic began. “We expect similar levels in August and autumn demand continues to increase,” she said.

But European businesses and consumers will face more economic pressure unless the weather cools. The war in Ukraine has left factories in the region, which has barely recovered from the pandemic, facing fresh supply chain crisis. Germany’s more manufacturing-dependent economy stabilized in the second quarter, missing analysts’ hopes of modest expansion and highlighting how dire the situation is for northern economies that may rely less on hospitality.

Russia’s invasion and doubts over Moscow’s desire to pump gas into Europe have increased household energy costs, which have risen 40 percent over the past 12 months, while food costs have risen 10 percent over the same period. . Leading to the worst cost of living crisis in decades.

Marina Lally, president of Italy’s National Federation of Travel and Tourism Industries, said resorts catering to more ordinary Italian families were under pressure. “People struggle to pay utilities, fuel and food prices for their cars have also gone up. [Italians] Either deciding not to go on vacation – or, instead of staying 10 days, they’re staying a week, or just three days.”

Confidence data last week from Eurostat, the European Commission’s bureau of statistics, showed consumers are more reluctant to make a big purchase than at any time since the early months of the pandemic.

That pessimism is unlikely to deter the European Central Bank from raising rates further in the autumn, after making its first hike in decades when it raised the benchmark deposit rate by 50 basis points to zero in late July.

“We expect the ECB to pick up” [the rate] “There will be a further increase of 100 basis points by the end of the year to help offset any increase in inflation expectations,” said Holger Schmeeding, economist at Berenberg Bank.

Overall, eurozone inflation rose to a new record high of 8.9 percent in July, according to Friday data from Eurostat, the European Commission’s bureau of statistics. Even the main measure, which removes increases in food and energy costs, was up 4 per cent – more than double the ECB’s 2 per cent target.

As interest rates rise and tourists return home, economists expect growth figures to worsen – especially if tensions with Moscow intensify. Russian energy firm is Gazprom cut flow Through its Nord Stream 1 pipeline, which leads Europe’s largest economy under the Baltic Sea, to only 20 percent of capacity – levels that if maintained would lead to a sharp recession in Europe.

“This quarter has brought good news, but doesn’t tell us much about the underlying health of the economy,” said Gilles Moik, chief economist at French insurer AXA. “What happens after summer is over?”

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