20 th March 2015

Outlook for NI tourism

NIHF Tourism Summit Helen McDermott

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Overview

Overview

 Global economic overview  Global tourism performance  Northern Ireland economic outlook  Structure of NI tourism industry  NI tourism outlook & key challenges

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Global economic overview

Global GDP grew by 2.6% in 2014…

World: GDP growth Emerging Markets vs Advanced Economies

10% 8% 6% 4% 2% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2% -4% Advanced Economies Emerging Markets World -6% Source: Oxford Economics

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…with a weak end to the year…

World: Monthly export indicator

Standardised index 2.0

1.0

0.0

-1.0

-2.0

Indicator based on US, German and Chinese export orders surveys

-3.0

-4.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 Source : Oxford Economics/Haver Analytics

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…and China slowing markedly…

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…contributing to drop in oil prices...

2009: Oil price fell from $147 to $40 but then rose again as capacity was tight 1985/6: Oil price halved and then remained low as supply was strong 8

…while oil supply remains high...

9 World: Oil supply and demand

% year 2.5

Demand 2.0

Supply 1.5

1.0

0.5

0.0

-0.5

-1.0

2013 Source : IEA/Oxford Economics 2014

…there will be winners and losers…

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…but in net terms this will boost world growth...

Global GDP growth, real US$

Annual % change 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2014 Source: Oxford Economics 2015 2016 2017 2018 2019

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US$ appreciation will dampen US exports…

1.5

1.0

0.5

US dollar exchange rate, vs Euro and British pound

US$ per currency 2.5

US$ vs Euro US$ vs GBP 2.0

0.0

Source: Oxford Economics

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…but good news elsewhere Exports growth across key markets

7% 2014 2015 6% 5.3% 5% 4.6% 4% 3.7% 3.5% 3.7% 4.2% 4.4% 3.1% 3% 2% 1% 0% US Source: Oxford Economics 0.4% UK Eurozone 3.8% 5.7% 2016 4.9% Germany 2.7% 3.4% 3.7% France

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Emerging markets showing no signs of improvement GDP growth, real local currency

Annual % change 10.0% 8.0% 2014 2015 2016 2017 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Brazil Source: Oxford Economics China India Russia

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Risks to the outlook skewed towards the downside… World GDP growth under 4 scenarios, real local currency

Annual % change 4.5% Baseline Forecast Greek exit of Eurozone Investment stalls in China 4.0% World GDP picks as oil prices fall further 3.5% 3.0% 2.5%

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2.0% 2010 2011 Source: Oxford Economics 2012 2013 2014 2015 2016 2017 2018 2019

Greek exit is big threat to Eurozone recovery 16

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Global tourism performance

Visitor numbers forecast to slow in 2015… 18 Global overnight visits and GDP (US$, real) growth

Annual % change 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Overnight visits growth GDP, real US$ growth -6.0% Forecast Source: Tourism Economics

…driven by weak growth from Russia and Asia EMs

Back to menu

Outbound overnight visits growth

Annual % change 10% 9% 8% 7% 6% 5%

4.9%

4%

3.1% 4.9% 3.6% 4.5% 5.1% 3.8%

3% 2% 1%

0.6% 3.4% 6.0% 5.4% 6.6% 19

0% Global Source: Tourism Economics Americas Europe Asia

9.2% 6.1% 6.4%

Middle East

4.8% 3.9% 4.4%

Africa 2014 2015 2016

…and Ukraine also down, but at a lower volume Outbound visits growth, Emerging Europe

Annual % change 8%

6.4%

6%

4.9% 5.3%

4%

1.8%

2%

1.6%

0% -2% -4% -6% -8%

-0.3%

-10% -12%

-10.7%

Russian Federation Source: Tourism Economics

20 -0.7% -4.0%

Poland

-2.8% -8.7%

Ukraine

-2.1%

Hungary

3.9% 2.7% 3.2%

Czech Republic Back to menu 2014 2015 2016

Russian weakness can be seen in sub region trends… Outbound visits growth from Europe by sub-region, 2014-16

6% 5.0% 5% 4% 3.8% 3.8% 3.4% 3% 2.8% 2.7% 2% 1.7% 0.6% 1% 0% -1% -2% 2014 -3% 2015 2016 -4% Western Europe Source: Tourism Economics -3.3% Emerging Europe Europe

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Northern Ireland economic outlook

Recovery finally picked up in 2014, but lags behind UK… 23 GVA growth, NI vs UK

Annual % change 5.0% Forecast 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% United Kingdom Northern Ireland -5.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Oxford Economics

…however, employment growth expected to stagnate… Employment growth, NI vs UK

Annual % change 4.0% Forecast 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% United Kingdom Northern Ireland

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-4.0% 2007 2008 2009 Source: Oxford Economics 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

…with the return to pre-recession peak remaining evasive Employment (000s), NI vs UK

UK employment (000s) 36,000.0

NI pre-recession peak

35,000.0

Forecast NI employment (000s) 880.0

860.0

34,000.0

840.0

33,000.0

UK pre-recession peak

820.0

32,000.0

800.0

31,000.0

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30,000.0

United Kingdom Northern Ireland 780.0

29,000.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Oxford Economics 760.0

Mixed fortunes for tourism related sectors recently… Contribution to employment growth by sector, 2010-14

Construction Agriculture, forestry, etc Wholesale & retail Public admin Transportation & storage Financial & insurance Accommodation & FBS Water supply Mining & quarrying Electricity, gas, etc Professional services Real estate Education Other services Arts, entertainment, etc Information & comms Admin & support Manufacturing Health & social work -164.3% -200% Source: Oxford Economics -150% -76.0% -57.9% -56.3% -50.6% -29.2% -10.8% -1.5% -0.7% -0.2% -100% -50% 0%

Net contribution to total jobs growth -7,000 jobs 2010-14

6.0% 19.0% 20.4% 22.7% 25.1% 29.5% 50% 71.4% 76.6% 76.8% 100%

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…but more promising outlook Contribution to employment growth by sector, 2014-20

Public admin Manufacturing Education Health & social work Agriculture, forestry, etc Mining & quarrying Financial & insurance Water supply Electricity, gas, etc Real estate Wholesale & retail Arts, entertainment, etc Other services Accommodation & FBS Information & comms Transportation & storage Professional services Construction Admin & support -81.5% -100% Source: Oxford Economics -80% -60% -25.5% -22.3% -11.4% -3.3% -1.3% -1.2% -0.2% -0.1% 4.6% 11.7% 18.9% 19.4% 20.5% 24.8% 27.2% 32.8% 33.6% -40% -20% 0% 20%

Net contribution to total jobs growth

40%

+11,000 jobs 2014-20

53.3% 60% 80%

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Unemployment remains high but growth to track UK Unemployment rate (claimant count), NI vs UK

Unemployment rate (%) 8.0% Forecast 7.0% 6.0% 5.0% 4.0% 3.0%

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2.0% 1.0% United Kingdom Northern Ireland 0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Oxford Economics

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Structure of Northern Ireland tourism

Tourism is a key contributor to NI economy… Sectoral contribution to total GVA, NI, 2013

Electricity, gas, etc Agriculture, forestry, etc Water supply Arts, entertainment, etc Other services Direct Tourism Accommodation & FBS Admin & support Information & comms Transportation & storage Professional services Financial & insurance Construction Total Tourism Real estate Education Health & social work Public admin Manufacturing Wholesale & retail 0% 2% Source: Oxford Economics, NITB 1.0% 1.0% 1.2% 1.3% 2.2% 2.4% 2.4% 3.2% 3.2% 3.7% 4.4% 4.4% 5.4%

UK total tourism contribution = 11.4% World total tourism contribution = 9.5%

6.6% 8.1% 8.5% 10.4% 11.2% 13.3% 15.0% 4% 6% 8% 10%

% share of total economy GVA

12% 14% 16%

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…and supports 1 in every 15 jobs across the region Sectoral contribution to total jobs, NI, 2013

Electricity, gas, etc Water supply Real estate Information & comms Financial & insurance Arts, entertainment, etc Other services Transportation & storage Agriculture, forestry, etc Direct Tourism Professional services Accommodation & FBS Admin & support Total Tourism Construction Public admin Education Manufacturing Health & social work Wholesale & retail 0.2% 0.7% 0.9% 0% 2% Source: Oxford Economics, NITB 2.3% 2.3% 2.4% 2.4% 4%

UK total tourism contribution = 11.7% World total tourism contribution = 8.9%

3.8% 3.9% 3.9% 4.3% 5.5% 5.8% 6.5% 7.0% 7.2% 9.0% 9.8% 6% 8% 10% 12%

% share of total economy GVA

14% 16% 16.2% 16.2% 18%

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NI tourism dominated by domestic visitors… % share of visits to/in Northern Ireland, 2013 1.3% 3.2% 1.1% 2.2% 2.9% 9.8% 28.6% 48.6% Northern Ireland domestic Great Britain Republic of Ireland US Germany France Canada Spain Italy Netherlands Rest of Mainland Europe Other 32

…which has remained relatively stable in recent years Trips taken by NI residents in recent years

5,000 4,713 2011 4,500 2012 4,000 2013 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Source: NISRA 2,046 2,018 Within NI 1,983 3,906 RoI / GB 4,584

33 £192mn expenditure by NI residents during trips within NI = 26.6% of total tourism spending

However, visitors from outside of NI bring greater return

4 5 6

Average length of stay by origin market

NI domestic 5.21

RoI GB & overseas 3 2 1 0 Source: NITB

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2.31

2.74

Average stay

Average spend per trip by origin market

300 £280 NI domestic 250 RoI GB & overseas 200 150 £143 £97 100 50 0 Source: NITB Average spend per trip

With total tourism expenditure of £474mn in NI in 2013 Structure of tourism expenditure by GB & overseas visitors in NI

North America 13% Other areas 14% Britain 58% Mainland Europe 15% Source: Tourism Ireland

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GB the clear leader in visitor arrivals growth since 2000 Contribution to overseas visitor arrivals growth by origin, 2000-13

Nordics Canada Netherlands Italy US Australia France Germany Spain Other areas Other Europe Britain -3% -2% 0% -10% 0% Source: Tourism Ireland 1% 5% 5% 5% 5% 6% 10% 16% 10% 20% 30% 40%

Net contribution to total visitor arrivals growth from overseas +335 visitors 2000-13

50% 52% 60%

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NI tourism outlook and key challenges

Arrivals exceed peak with continued expected growth… Northern Ireland visitor arrivals from GB and overseas (000s)

2,200 Forecast 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200

Return to peak by 2015 +369mn visitors from 2014 level (+21.1%)

Source: Tourism Ireland

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…despite challenge of euro depreciation… Euro / GB pound exchange rate

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Source: Oxford Economics Euro / £

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…with moderate falls in market share… Northern Ireland visitor arrivals share of Global outbound

0.25% Forecast 0.20% 0.15% 0.10% 0.05% 0.00% Source: Tourism Ireland

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…travel from EZ markets is weaker… Origin market share vs average annual growth, 2014-20

80% Great Britain 70% 60% 50% 40% 30% 20% 10% Other Europe Nordics Germany 0% 0% 1% US Italy Spain Canada 2% 3% 4% 5% 6%

Average annual growth in visitor arrivals, 2014-20

Source: Tourism Ireland Netherlands 7% 8%

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…but larger markets are the key driver of growth Contribution to overseas visitor arrivals growth by origin, 2014-20

Nordics Germany Italy Other Europe Spain Netherlands Australia France Canada US Great Britain 0.1% 0.9% 0.9% 1.0% 1.4% 2.2% 3.6% 3.6% 4.5% 6.5% 0% 10% Source: Tourism Ireland 20% 30% 40% 50% 60%

Net contribution to total visitor arrivals growth from overseas +369 visitors 2014-20

70% 70.9% 80%

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An additional £162mn in revenue expected by 2020 Revenues from GB and overseas (£m, current prices)

700 Forecast 600 500

+£162mn from 2014 level (+35.2%)

400 300 200 100 0 Source: Tourism Ireland

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Expected arrivals growth to NI, below RoI average Visitor arrivals growth, NI vs RoI (% per annum, 2014-20

15% Forecast 10% NI RoI 5% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -5% -10% Great Britain North America Mainland Europe Other Areas

2014/15 Seat Capacity, NI vs RoI NI

139024 2030 15593 -

RoI

276051 61892 302226 -

NI relative seat capacity

50.4% 3.3% 5.2% Source: NITB, Tourism Ireland -15% -20% Source: Tourism Ireland

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VAT reduction could be key to tourism industry

Overseas visitors and revenue in Republic of Ireland

Visitors (000s) 10000 VAT cut 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Overseas visitors Overseas tourism revenue Source: Tourism Economics

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Revenues ( €mns) ■ 6000 5000 4000 3000 2000 ■ 1000 0 VAT in Northern Ireland is currently set at 20% relatively high we compared to a European average of 10.8% and the Republic of Ireland at 9%. Since the Republic of Ireland reduced their VAT rate on the hotel industry to 9% in 2011, they have seen a surge in visitor numbers and revenue, albeit with a lag period of around 1 year. The reduction in VAT is forecast to lead to record revenue and visitor numbers in 2015 in the Republic of Ireland – A clear indication of the power of tax cuts in the tourism industry

Key challenges to NI tourism

 Improving access – particularly air to gain market share from long haul markets where visitors typically stay for longer and spend more  Policy support to the tourism industry via tax cuts (VAT & APD)  Building on recent successes and securing new events that attract international visitors (e.g. World Police and Fire Games, Derry Londonderry City of Culture, Giro D’Italia, Ryder Cup)  External challenges will prevail in the form of weaker euro

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Forecast gives cause for optimism and concern 2020 Tourism Strategy Targets vs expected performance 2013 2020 Net change 2013 20 Target Growth requirement Visitors (000s)

Domestic NI RoI GB & Overseas Total 1,983 400 1,693 4,076

Revenue (£mn)

Domestic NI RoI 192 57 GB & Overseas Total 474 723 Source: DETI, NITB, Tourism Economics 2,118 622 425 149 4,500 1,000 424 277

Contribution to target

100.2% 53.6% -

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For more information: Helen McDermott, Lead Economist, Tourism Economics, an Oxford Economics company, +44 28 92 635 404, [email protected]

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Annex

…as lower oil price boost incomes… 50

…and pick-up in consumer confidence 51 Consumer confidence: US, UK and Eurozone

1985=100 160 UK

(RHS)

% Balance 10 5 120 80 Eurozone

(RHS)

0 -5 -10 -15 40 US

(LHS)

-20 -25 -30 -35 -40 0 2001 2003 Source: Haver Analytics 2005 2007 2009 2011 2013 2015 -45

Few sectors outperforming UK since recession… NI sectoral employment growth relative to UK, 2010-14

Agriculture, forestry, etc Construction Transportation & storage Professional services Accommodation & FBS Water supply Financial & insurance Mining & quarrying Total Wholesale & retail Arts, entertainment, etc Education Admin & support Health & social work Information & comms Other services Real estate Electricity, gas, etc Manufacturing Public admin -5.9% -7% Source: Oxford Economics -6% -4.9% -4.8% -4.1% -3.6% -3.2% -2.7% -1.8% -1.8% -1.0% -0.8% -0.8% -0.7% -0.7% -0.4% -0.2% -5% -4% -3% -2% -1% 0%

NI average annual growth - UK average annual growth

0.1% 0.4% 1% 1.3% 1.4% 2%

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…growth sectors have smaller market share NI sectoral employment growth relative to UK, 2014-19

Real estate Professional services Wholesale & retail Total Accommodation & FBS Construction Arts, entertainment, etc Admin & support Public admin Financial & insurance Education Health & social work Other services Transportation & storage Information & comms Manufacturing Mining & quarrying Water supply Electricity, gas, etc Agriculture, forestry, etc -2% Source: Oxford Economics -0.9% -0.7% -0.6% -0.6% -0.5% -0.5% -0.5% -0.3% -0.2% -0.2% -0.2% -0.2% -0.1% -0.1% 0.3% 0.4% 0.4% 0.5% 0.8% -1% -1% 0% 1%

NI average annual growth - UK average annual growth

1% 1.3% 2%

82.3% share of 2014 jobs 17.7% share of 2014 jobs 53