MONTHLY ECONOMIC IMPACT

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1 MONTHLY ECONOMIC IMPACT FEBRUARY 2018 ECONOMY UPDATE President Trump announces steel and aluminium tariffs, sparking fears of global trade war UNITED STATES Personal spending and durable goods shipments data for January signalled softer US GDP growth in Q1. But the overarching message is economic activity is still on a healthy course after ending 2017 on a buoyant footing. Following predicted GDP growth of 2.2% in Q1, through the rest of 2018 GDP growth is expected to accelerate to around a 3%, underpinned by a fiscal boost from additional budget spending and tax cuts. Meanwhile, the announcement of President Trump s plan to implement 25% tariffs on steel imports and 10% tariffs on aluminium imports has caused concern, not surrounding the direct impact, but rather the increased risk of trade tensions escalating, potentially sparking a global trade war. Only Canada and Mexico were explicitly granted a temporary exclusion from the measures, with other major steel exporters left in the dark as to whether they will be hit or not. On the monetary policy front, during his first public remarks since being appointed as the new Fed Chair, Jerome Powell stated that he sees inflation firming towards 2%, which supports Oxford Economics forecast of four rate hikes during UNITED KINGDOM Consumers endured a severe squeeze on their spending power in 2017, due to the combination of subdued nominal wage growth and fiveyear high inflation of 2.7%. Oxford Economics expects that inflation has now passed its peak and will slow through 2018, dropping below the 2% target by late-summer. However, the recovery in household spending power will be constrained by the government s welfare reforms and softer employment growth this year. Further, February s MPC meeting delivered a hawkish message, making it clear that markets were underestimating both the timing and pace of rate hikes. Oxford Economics see this message as being consistent with two 25bp rate hikes in 2018, at the May and November meetings. This will act as a further drag on the consumer sector, with consumer spending growth expected to slow from 1.8% last year to a seven-year low of just 1.0% in EUROZONE Survey data suggest the Eurozone economy entered 2018 in rude health after robust growth of 0.6% in Q4. The weakening in some manufacturing surveys may signal the business cycle is maturing and the tailwind from global growth fading, but record-high services sentiment and a buoyant labour market should ensure strong GDP growth of 2.3% in 2018 after record growth of 2.5% in Inflation edged down further to 1.3% in January, whereas core inflation inched up to 1.0% after being stuck at 0.9% for three months. The impact of the stronger euro on import prices will lead to slightly lower inflation in Q1 than in Q4 2017, but the rise in oil prices and increasing pipeline price pressure mean that the fall will be transitory and inflation should trend up modestly in H2 this year. EMERGING MARKETS Growth momentum remains solid at the start of 2018 in China, driven by steady export performance and healthy domestic demand. However, domestic demand is expected to cool later this year due to tighter monetary and financial policies, but the slowdown is not expected to be dramatic, as stability remains a key government objective. Overall, Oxford Economics expects Chinese GDP growth of 6.4% this year, down from 6.9% in Meanwhile in Russia, 2017 GDP growth is estimated to have come in at 1.5% which is the fastest rate of growth registered since Looking ahead, with oil prices continuing to recover, Russian GDP growth is expected to accelerate to 1.8% in Global GDP growth (%) 2017 Direct T&T GDP growth (%) 2017 annual update 2.9% 3.8% February % Note: Growth rates in this table are stated in 2016 constant prices and exchange rates.

2 The upward green arrow indicates that given global macroeconomic developments and year-to-date 2017 Travel & Tourism performance, Oxford Economics now expects that global growth in direct Travel & Tourism GDP in 2017 was stronger than expected at the time of the 2017 annual economic impact research update (March 2017). TRAVEL & TOURISM INDICATOR UPDATE Strong performance for global Travel & Tourism in 2017 and encouraging early signs for 2018 Global international tourist arrivals grew by 6.7% in 2017, a strong acceleration in growth compared to 3.9% in 2016 and the strongest rate of annual growth recorded in several years. Each world region experienced growth, with the strongest recorded growth in North Africa (13.4%), largely attributed to Tunisia, which experienced strong bounce-back growth as it continues its recovery from recent terror attacks. There was also strong growth of 4.8% for the Middle East region, following a decline in 2016, primarily driven by a sharp resurgence in arrivals to Egypt following a very weak Strong growth was also recorded across other major regions, including Europe (8.4%), which rebounded from the negative effects of terror attacks. Asia Pacific (5.8%), Sub-Saharan Africa (5.1%) and the Americas (2.9%) also enjoyed robust growth. Data on arrivals performance for early 2018 is not widely available at this point. Global international air passenger traffic also recorded strong performance in 2017, with full year growth of 7.9%, compared to growth of 6.7% for Contributing to this strong global performance was particularly strong growth in Asia Pacific (9.4%), Europe (8.2%), Africa (7.6%) and the Middle East (6.6%). North America also recorded robust growth of 4.8%. For 2018, data is so far only available for January. While it is too early to draw conclusions from the data, the momentum from 2017 looks to be continuing with solid growth recorded across all world regions. However, at a global level, year-on-year growth in January was considerably slower than 2017 full-year growth, primarily due to temporary factors including the later timing of the Lunar New Year in 2018 as well as less favourable comparisons with the strong upward trend in traffic seen in late 2016 and the early part of Note airline traffic is allocated according to the region in which the carrier is registered and should not be considered to precisely measure regional air traffic. Regional hotel performance was positive across most world regions in 2017, except, somewhat surprisingly given other key performance indicators, the Middle East, which recorded a decline across all three measures of hotel performance. However, hotel demand performance metrics also need to be viewed in the context of supply trends. For example, occupancy rates can decline even if room demand is rising but at a slower pace than expanding room supply. North Africa recorded stand out growth rates across all key performance indicators, albeit this was partly driven from a low 2016 base. Although less spectacular, solid growth was recorded across all hotel metrics in Europe, the Americas and Asia Pacific. For 2018, hotel performance data is so far only available for January. Strong 2017 performance in North Africa looks to be continuing in early 2018, while solid performance has also been recorded in Europe and North America across all KPIs. Year-to-date (YTD) performance of airline traffic, international tourist arrivals and hotels (% growth unless stated) International air passenger traffic (RPK) International tourist arrivals Regional hotel performance Jan 2018 vs. Jan Occupancy rate pp change ADR RevPAR Europe Americas North America Asia Pacific Middle East Africa North Africa Sub-Saharan Africa World Sources: IATA, UNWTO, STR Global. Note: Across the three metrics, the country composition of the different regions does not match exactly. FORWARDKEYS AIR TRAVEL BOOKING TRENDS Air travel growth accelerates strongly in early 2018 International inbound: During the three-month period between February 2018 and April 2018, Asia Pacific (24.4%), Africa (14.0%) and Europe (13.4%) are expected to be the fastest growing destinations in terms of annual inbound air travel passenger growth, according to ForwardKeys. All three regions are expected to experience double-digit growth during this period. Meanwhile, ForwardKeys booking data suggests solid

3 growth for the Americas of 6.5% between February and April, with growth in the Middle East expected to be slightly lower, at 4.3%. At a global level, annual bookings growth of 14.7% is reported for the February to April 2018 period, which points to a very encouraging start to 2018 for global travel, particularly in the context of growth of 7.5% for 2017 overall, according to ForwardKeys. International outbound: Over the next three months, Asia Pacific is expected to be the fastest growing region from an outbound perspective, at 30.4%. This is based on ForwardKeys data on bookings issued by the end of January 2018 with a departure date between February and April Outbound air travel departures growth over the next three months from Africa and the Americas is also expected to be strong, with double digit growth of 15.3% and 10.2% reported respectively. Growth in Europe and the Middle East is expected to be robust, but less spectacular at 8.7 and 5.8% respectively. Domestic: Domestic air travel is expected to experience strong growth in the upcoming three-month period across all world regions. At a global level, expected domestic departures between February and April is reported at 11.4% relative to the same period last year. ForwardKeys air travel bookings (% annual growth vs. same period last year) International inbound International outbound Domestic travel departures next 3m (Feb - Apr) Change in growth next 3m vs. YTD departures next 3m (Feb - Apr) Change in growth next 3m vs. YTD YTD departures Jan 2018 departures next 3m (Feb - Apr) Europe Americas Asia Pacific Middle East Africa World Source: ForwardKeys. Note: Data relate to air travel bookings for visitors staying at least one night, expressed as % change compared to the same period last year. Domestic data relate to air travel within the same country. MAJOR ECONOMY AND TRAVEL & TOURISM HEADLINES LAST MONTH Japan s economy has recorded eight consecutive quarters of economic growth its longest streak for 28 years. However, a preliminary reading shows that growth slowed during Q4 with reported annualised growth of 0.5% during the 3-month period, falling from a pace of 2.5% during the previous quarter. US aluminium premiums for immediate delivery soared to a 3-year high after Trump announced plans for increased import tariffs. US production of aluminium is forecast to rise by 180,000 tonnes in 2018 and a further 440,000 tonnes in 2019 as a result of the tariffs, according to Bloomberg. After surging to a four-year high of US$70 per barrel in mid-january, Brent crude oil prices have fallen back to around US$65 per barrel, and downward pressure may persist in the weeks ahead as higher prices incentivise US shale production. The US dollar has now fallen by around 10% on a trade-weighted basis since 2017, but while further losses are expected in the near-term, Oxford Economics does not at this point anticipate a continued lengthy slide, such as that seen in the period. The European Commission s draft withdrawal agreement for Brexit has now been published. While this is a welcome development, the issue of the Irish border remains a contentious topic, with Theresa May immediately rejecting the proposal of a "common regulatory area" after Brexit on the island of Ireland - in effect keeping Northern Ireland in a customs union - if no other solution is found. The state of emergency continues throughout the Maldives due to political unrest. The state of emergency is now due to end on 22 nd March following a 30-day extension. As a result, hundreds of holidays have been cancelled. A representative from one of the resorts stated that they were receiving 50 to 60 room cancellations per day. A new agreement has been signed between the UNWTO and the European parliament, with the advancement of sustainable tourism across Europe a central objective of the agreement.

4 Overnight international tourist arrivals growth (% year-on-year to the indicated month) Year to: % Year to: % Year to: % EUROPE AMERICAS ASIA-PACIFIC Austria Dec Antigua & Barbuda Nov Australia Oct Belgium Oct Argentina Cambodia Sep Bulgaria Nov Aruba Nov China Croatia Nov Bahamas Fiji Oct Cyprus Dec Barbados Sep Hong Kong Nov Czech Republic Sep Bermuda Nov India Nov Denmark Oct Brazil Indonesia Nov Estonia Nov Canada Oct Japan Jan Finland Dec Chile Dec Kiribati Jun France Sep Cuba Laos Germany Nov Dom Republic Nov Macau Nov Greece Oct Grenada Oct Malaysia Jun Hungary Nov Jamaica Dec Maldives Nov Iceland Dec Martinique Sep Myanmar Italy Oct Mexico Nov Nepal Dec Latvia Oct St Lucia Oct New Zealand Nov Lithuania Sep St Vincent Sep Papua New Guinea Jun Malta Dec US Sep Philippines Nov Montenegro Nov MIDDLE EAST Singapore Oct Netherlands Nov Egypt Oct South Korea Nov Norway Sep Israel Dec Sri Lanka Dec Portugal Dec Jordan Jun Taiwan Nov Russia Sep Lebanon Nov Thailand Nov Slovakia Nov UAE Oct Vanuatu Jun Slovenia Nov AFRICA Vietnam Dec Spain Dec Kenya Sep REGIONAL ESTIMATES Sweden Oct Madagascar Sep Europe Dec Switzerland Nov Mauritius Dec Americas Dec Turkey Nov Morocco Nov Africa Dec UK Oct Nigeria Middle East Dec South Africa Oct Asia Pacific Dec Tunisia Dec Uganda WORLD Dec Sources: UNWTO, TourMIS, JNTO, ONS, NTTO. According to the latest UNWTO World Tourism Barometer, global overnight tourist arrivals grew by 6.7% in 2017 overall. This was the strongest performance recorded in several years, and a significant uplift on 2016 performance. Strong global growth was largely due to very strong growth in Europe (8.4%) and robust performance across all other world regions. Data relating to international tourist arrivals performance for early 2018 is not yet widely available, but ForwardKeys air travel booking data point to strong momentum in early Growth in overnight tourist arrivals in 2017 was robust and broad-based throughout Europe with the strongest growth in Turkey (30%), Iceland (24%), Montenegro (19%) and Slovenia (17%). The major Travel & Tourism economies in Europe also recorded strong arrivals growth during the period, including Portugal (12%), Spain (9%), France (8%), the UK (6%) and Germany (5%). The Americas was the slowest growing region (2.9%) in terms of international arrivals in 2017, held back by a contraction in arrivals of 4% to the US, according to NTTO. However, it should be noted that other data sources for the US, including APIS and OAG, paint a much brighter picture of US inbound performance in Meanwhile, double-digit growth in Chile (14%), Mexico (12%) and Bermuda (10%) was recorded. Arrivals to Canada grew by a robust 4%. Africa enjoyed a strong 2017, with arrivals growth of 7.8%. In North Africa, growth of 13.4% was recorded, thanks mainly to a resurgence in arrivals to Tunisia (23%). Growth in Sub-Saharan Africa was slightly less eye-catching at 5.1%, with strong growth in Kenya (10%) but moderate growth in South Africa (2%). The Middle East recorded arrivals growth of 4.9% in 2017, with the rebound in Egypt (55%) contributing strongly to the wider regional growth. Israel, Jordan and Lebanon also recorded strong growth of 25%, 11% and 11% respectively. Meanwhile, growth of 7% was recorded in the UAE. The Asia Pacific region also enjoyed a positive 2017, with international arrivals growth of 5.8%. Double digit growth was recorded across several countries within the region, including Vietnam (29%), Nepal (25%), Indonesia (22%), Japan (19%) and India (16%). In contrast, international arrivals to South Korea fell by 23% to November, linked to the diplomatic row with China, which banned travel agencies from selling package tours to Korea in protest at Seoul allowing a US missile defence system. The ban has now been partly lifted. In Taiwan, international tourist arrivals contracted by 0.3%, due to a continued decline in inbound tourists from China, after Beijing suspended official communication with Taipei in June It should be noted that regional estimates are based on limited country coverage, particularly in the cases of the Middle East and Africa.

5 International tourism receipts growth (% year-on-year to the indicated month) Year to: % Year to: % Year to: % EUROPE AMERICAS ASIA-PACIFIC Austria Sep Antigua & Barbuda Jun Australia Nov Belgium Sep Argentina* Sep Cambodia Sep Bulgaria Oct Aruba Jun China* Dec Croatia Sep Bahamas Jun Fiji Sep Cyprus Sep Barbados Sep Hong Kong Sep Czech Republic Sep Bermuda Jun India Nov Denmark Sep Brazil* Nov Indonesia* Sep Estonia Sep Canada Sep Japan Nov Finland Sep Chile* Sep Kiribati* France Nov Cuba Laos* Jun Germany Nov Dom Republic* Sep Macau Sep Greece Oct Grenada Jun Malaysia Sep Hungary Sep Jamaica* Mar Maldives* Iceland Sep Martinique Myanmar* Mar Italy Oct Mexico* Nov Nepal Jun Latvia Oct St Lucia Jun New Zealand Sep Lithuania Sep St Vincent Jun Papua New Guinea Jun Malta Sep US* Dec Philippines* Sep Montenegro Sep MIDDLE EAST Singapore Sep Netherlands Sep Egypt* Sep South Korea* Nov Norway Sep Israel* Sep Sri Lanka* Nov Portugal Oct Jordan Sep Taiwan* Sep Russia* Sep Lebanon* Thailand Sep Slovakia Sep UAE Vanuatu Slovenia Oct AFRICA Vietnam* Dec Spain Oct Kenya* Jun REGIONAL ESTIMATES Sweden Sep Madagascar Europe Switzerland Sep Mauritius Oct Americas Turkey* Nov Morocco Nov Africa UK Sep Nigeria* Jun Middle East South Africa Sep Asia Pacific Tunisia Sep Uganda* Sep WORLD Sources: UNWTO, NTTO, ONS, CNTA. Note: Countries whereby data are recorded in US$ are denoted by an asterisk after the country name. In Europe, Turkey recorded strong growth in international tourism receipts in nominal US dollar terms (20%), following a contraction of around 30% last year. Portugal (19%), Spain (11%) and the UK (10%) also enjoyed strong growth in international tourism receipts, in line with their impressive international arrivals performance. Inbound international tourism receipts growth was also particularly strong in Russia (19%), Malta (17%) and Sweden (14%) in In the Americas, international tourism receipts growth in 2017 was particularly strong in Chile (36%), in line with strong inbound arrivals for the same period. Growth was also strong in Canada (10%) and Mexico (9%). Meanwhile, inbound spending in the US declined by 3% according to NTTO. But as noted earlier with relation to US international tourist arrivals, the NTTO data is considerably weaker than what other US data sources imply for 2017 performance. In the Middle East, the recovery of the Travel & Tourism industry in Egypt led to very strong inbound receipts growth (202%) up to the third quarter of Receipts growth in Israel (15%) and Jordan (12%) was also strong in In Africa, Kenya recorded impressive growth in international receipts (21%), consistent with an encouraging increase in international arrivals in Tunisia s strong growth in international arrivals has been translated into an increase in international tourist receipts with growth in receipts of 18%. Less positively, a decline in inbound spending was recorded in Uganda (-14%), and Africa s largest two economies, Nigeria (- 9%) and South Africa (-2%). In the Asia Pacific region, Nepal has been the stand out performer with 49% growth in international receipts for the first half of 2017 as the country s Tourism & Travel industry continues to recover from the devastation of the 2015 earthquake. Other economies within the region have also enjoyed strong growth in inbound receipts such as the Philippines (24%), Macau (19%), India (17%), and Cambodia (16%). Japan enjoyed another year of strong growth in inbound receipts, with growth of 13% recorded to November. Less positively, and in line with weak inbound arrivals performance, inbound spending declined in Taiwan (-13%) and South Korea (-23%).