The beach of Thermaikos gulf in Thessaloniki, on May 5, 2022. PHOTO: SAKIS MITROLIDIS/AGENCE FRANCE-PRESSE/GETTY IMAGES
Rising eurozone inflation is squeezing household purchasing power and the manufacturing sector continues to struggle with supply shortages. But in this weakening economy, there is one sector that is taking off: tourism.
“Hospitality and travel is booming as Europeans make the most of their post-Covid freedoms,” Capital Economics’ Andrew Kenningham said in a research note.
After an expected weak second quarter, the tourism sector is forecast to do some heavy lifting in the eurozone economy.
“The 0.4% quarter-on-quarter gain which we project for the third quarter after likely stagnation in the second quarter reflects our call for a solid summer tourist season after two years of Covid-19 restrictions rather than any significant growth outside this sector,” Berenberg’s chief economist Holger Schmieding said in a note.
Oxford Economics’ tourism tracker shows that overnight stays reached prepandemic levels in May for the first time in two years. Online search and booking data show the positive trend is set to continue in the high season, Oxford Economics’ senior economist Tomas Dvorak said in a note.
“We think this will provide a solid boost to growth for the tourism-oriented economies in 2022,” Mr. Dvorak said.
Analyzing international travel interest in flights and accommodation combined, UBS found that out of the five countries attracting the most tourists, four are in Europe: Spain, Italy, France and the U.K. The number one international tourist destination is the U.S., according to UBS’s analysis.
“From both the perspective of volume and prices, it looks as if it is going to be a strong summer,” Jarrod Castle, analyst for travel and leisure at UBS, said in a video presentation.
Airlines are experiencing strong bookings for the summer. A number of carriers have said bookings this year are so far exceeding those of 2019, according to Mr. Castle.
This is also the case for eDreams Odigeo SA, one of the largest flight retailers in Europe. In the fiscal year ended March 31, eDreams Odigeo surpassed its previous record for bookings, at 10% above the levels in fiscal 2019.
The Omicron wave of the coronavirus limited tourism in winter, but as infections fell in February and governments eased restrictions, tourism began to recover. In March, bookings with eDreams Odigeo increased 34% compared with the same month in 2019. In April, they were 52% above their level in April 2019 and last month they were up 58% compared with May 2019.
“There is real demand out there, in the summer people want to travel,” Dana Dunne, chief executive officer at eDreams Odigeo, told The Wall Street Journal.
Technology is transforming businesses and Zoom meetings are replacing in-person events. Nevertheless, consumers want real-life travel, which can’t be replaced by technology, he said.
“Travelers want to go to the beach and walk the city center,” Mr. Dunne said.
The cost of holidays has risen over the past year, more than the aggregate inflation rate, Mr. Kenningham told the Journal. Air travel prices were up 23.3% on year in April; package holiday inflation was 8.8%; accommodation inflation was 11.3%; and restaurant inflation stood at 4.6%, according to Mr. Kenningham.
“Of course, people are also seeing nominal wage rises, but they are much lower than these inflation rates so holidays are getting more expensive and difficult to afford.”
But the rise in prices won’t prevent a strong rebound in tourism, he said. “Demand will be quite inelastic to the price because people have huge pent-up demand for foreign holidays and household finances are in good shape thanks to the excess savings accumulated during the pandemic,” Mr. Kenningham said.
Mr. Dvorak agrees, saying in a note: “Pent-up demand for travel among households after two years of pandemic seems to be trumping the cost-of-living crisis, tallying with our expectation of a rotation in spending away from goods to services in 2022.”
While tourism is doing well, data also point to slowing demand for other services. This suggests that households are prioritizing holiday spending over other expenditures, Mr. Dvorak said.
Due to the tourism boom, Oxford Economics forecasts services-oriented economies are likely to outperform this year.
Popular European vacation destinations are experiencing a strong rebound in tourism activity–Spain and Portugal are topping in number of overnight stays, with Italy close behind, while Greece, Croatia, and Malta are lagging slightly, according to Oxford Economics.
“While tourism in European hotspots had to rely on domestic visits during the pandemic, we are seeing the share of foreign arrivals close to pre-pandemic averages in most tourism-oriented European economies,” Mr. Dvorak said.
Based on the historical relationship between overnight stays and tourism contributions to gross domestic product, Oxford Economics estimates the tourism rebound in 2022 would contribute up to 1 percentage point to its 2.8% annual GDP growth forecast for the eurozone.
Write to Maria Martinez at maria.martinez@wsj.com