Europe’s healing process—while staggered and uneven—is still underway, and reopening looks set to begin this summer. Recent difficulties in containing new Covid-19 cases, as well as a slower-than-expected vaccine rollout will likely reduce economic activity in the first half of the year. However, the impact of new lockdowns on growth already appears to be less severe than seen earlier in the crisis as both consumers and businesses are adapting to the new world order.
We expect activity to rebound strongly following the third quarter, as restrictions are gradually removed and early missteps in vaccine distribution are remedied, providing further impetus to the recovery. As such, Euro area GDP may average 5.1% this year; double trend growth.
As the healing process continues, ‘’high-contact’’ sectors look poised to play catch up, with mobility data (which includes the likes of airport traffic, hotel occupancy and retail sales) broadly still 20-60% below pre-pandemic norms. In that vein, despite the severe economic shock caused by the pandemic, consumers appear to be in a strong position, particularly as EU household balance sheets have strengthened over the past year. Most notably, the household savings rate has increased in all member states (for which data is available), as consumer expenditures fell dramatically through 2020 while incomes remained resilient, in large part thanks to government-backed stimulus measures.
Going forward, unemployment rates are expected to gradually fall, and households may also enjoy an ongoing wealth effect from rising asset values.
We expect activity to rebound strongly following the third quarter, as restrictions are gradually removed and early missteps in vaccine distribution are remedied, providing further impetus to the recovery. As such, Euro area GDP may average 5.1% this year; double trend growth.
As the healing process continues, ‘’high-contact’’ sectors look poised to play catch up, with mobility data (which includes the likes of airport traffic, hotel occupancy and retail sales) broadly still 20-60% below pre-pandemic norms. In that vein, despite the severe economic shock caused by the pandemic, consumers appear to be in a strong position, particularly as EU household balance sheets have strengthened over the past year. Most notably, the household savings rate has increased in all member states (for which data is available), as consumer expenditures fell dramatically through 2020 while incomes remained resilient, in large part thanks to government-backed stimulus measures. Going forward, unemployment rates are expected to gradually fall, and households may also enjoy an ongoing wealth effect from rising asset values.
Consumers appear to be in a strong position with an increase in the savings rate observed over the last year
With new savings amassed, and activation of large pent-up demand across Western Europe, a period of super-normal consumer spending could be ahead of us. After the prolonged lockdown, pent-up demand for experiences and fun may see the composition of that spend shift back towards hard-hit services. Meanwhile, demand for consumer goods (such as home furnishings and electronics that actually thrived through the crisis) could slow from its early torrid pace.
Europe’s economy is mobility-oriented. By region, countries such as Greece and Spain, where tourism is a major component of the economy, stand to see the biggest growth boost.
By sector, we expect spending on travel, leisure and hospitality to experience a strong revival, including transport infrastructure and beverage sub-sectors, where longer-term secular drivers are also favourable. A recent J.P. Morgan survey in Europe* suggests domestic and short haul traffic will recover faster than long haul. A favourable shift towards using Online Travel Agents when booking a hotel versus pre Covid-19 was noted, driven by a desire to compare hygiene ratings between hotels, as well as the best hotel deals. Meanwhile, thinking longer- term, most respondents expected to do less business-related travel, with virtual meetings replacing the need to travel.
In assessing opportunities amid Europe’s re-opening, it is critical to be mindful that the pandemic is driving changes in consumer behaviour. Many of these behavioural changes may endure beyond the end of this crisis.
For the consumer service sector in Europe, the pandemic is an invitation to adapt to consumers’ changed expectations and re- imagine the customer experience.
For example, at J.P. Morgan Private Bank, we see digital transformation across all industries as a prevailing megatrend that can continue to disrupt the status quo for years to come. For consumer service providers across Europe’s travel, leisure and hospitality sectors, longer-term competitive positioning could be enhanced through investments in app-based or ‘’at home’’ services, digital payments, augmented or virtual reality.
Europe is healing. After a very dark year, there is light at the end of the tunnel. As vaccines are deployed and lockdowns come to an end, the region’s mobility-oriented economy stands to play catch-up. Over the short term, the opportunity to normalize depressed service sectors will be a key growth driver. Harnessing this re-opening and adapting to the new normal will be the key to thriving in the years ahead, as the Covid-19 pandemic eventually fades.
*Inaugural J.P. Morgan Air Travel & Hotel Survey, J.P. Morgan Cazenove, February 2021.
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Konstantinos Alexopoulos has been a professional in the Greek hospitality industry for two decades with extensive experience in hotel
management, operation and consulting. He is the CEO of Domotel Hotels & Resorts Group, which has a history of more than 15 years in its current form and a heritage in the hospitality sector which began in 1964. Additionally, he holds the position of CEO at DHR Services,
supporting hospitality brands through his extensive know-how in the industry; both positions are reinforced by his ten years of experience in the construction sector in Greece and the Balkans, which furthered his knowledge of local markets. Having completed his Degree as a Civil Engineer at the Aristotle University of Thessaloniki, he continued with a Master in Science in “Construction Economics and Management” in UCL and a Master of Arts in Hospitality Management in Middlesex University. Furthermore, he has attended two complementary training programs in finance and management at the University of Macedonia. He is a member of the Board of Directors of the Greek Tourism Enterprises Confederation (SETE) and the treasurer of the Board of Directors of the Institute of SETE, a member of the Leadership Committee of the Hellenic – American Chamber of Commerce and holds positions in a number of Boards of Directors of other organizations.
After completing her Bachelor in Business Administration (Minor in Science and Economy) at the American College of Thessaloniki, she continued with an MBA in Hospitality Marketing at Les Roches School of Hotel Management in Switzerland and a Diploma of Higher Education in International Tourism “The French approach” from the Universite Paris I Pantheon Sorbonne. She has been running the family owned hotel for almost twenty years, initially as an Operations Manager and later on as General Manager and CEO. She has been a member of the Board of Directors in Thessaloniki’s Hotels Association and has participated as a guest speaker in several lectures and seminars such as Yield Managementin Les Roches (Bluche, Switzerland), and Operations Management Principles and Housekeeping Principles in CMH (Paris, France).