Energy & emerging market concerns dampen outlook

Gillian Saunders calls on businesses to insulate themselves against global trends

Business growth indicators in the hospitality and tourism sector took a bit of a nosedive globally in Q1 according to our International Business Report (IBR). Expectations for increasing revenues, profits and investment all fell over the past three months. This surprised me slightly; after all, the global economy is picking up, the recovery seems to be moving onto a more sustainable footing and discretionary spend should follow. Why therefore are hospitality and tourism businesses not more positive?

Well, for one thing, the global recovery still has some way to run according to businesses in the hospitality and tourism sector: 48% cite economic uncertainty as a constraint on growth over the next 12 months, ten percentage points higher than the all-sector average. While the past few months have been better for developed markets – particularly the US and Europe – many emerging markets have taken a bit of a pummelling. Elections in India and Indonesia, social unrest in Latin America and Thailand, sharply slowing growth in South Africa and Turkey and fears over levels of local government debt in China are all clouding the economic outlook. Flush with new wealth, burgeoning middle classes in these markets  are becoming increasingly important consumers of  global tourism, so any slowdown in growth and spending patterns is likely to have a global impact.

The other issue businesses in the sector foresee is the pressure of rising energy costs; 45% expect this to constrain growth over the year ahead, again a full ten percentage points above the all-sector average. Social unrest in North Africa and the Middle East has not yet translated into hugely inflated energy prices, partly because the shale revolution in the US has made its economy virtually self-sufficient, helping to keep a lid on global prices. But businesses in the sector, from hotels and restaurants to golf courses and cruise liners, are all relatively large consumers of energy. Even minor shifts can have a big impacts on the bottom line. And when you consider that the interviews were conducted before the Ukraine crisis erupted up, the cost of energy is an issue I am going to keep my eye on.

Given that uncertainty and energy costs are largely driven by global phenomena, offering tangible advice to businesses is complex. But there are steps businesses can take to mitigate these issues. In the current climate I would suggest revisiting your marketing and investment strategies to make sure they are not too focused on emerging market opportunities, while neglecting those in Europe and North America. And this could also be a good time to invest in adopting energy efficiency measures, or perhaps consider more sustainable sources of power such as installing solar panels.

Insulating your business against global economic trends may demand resources in the short-term. But in the longer term it could provide you with a competitive edge.

Gillian Saunders is global leader for hospitality & tourism at Grant Thornton.