Foreign Perspectives

Archive for the ‘Economy’ Category

Not a massive one but a jump nonetheless.

Chances are that it’s down to one of the oddities of the recession. Most of our internet income comes via the stable of accommodation listings sites that we run. Since holiday accommodation falls in the category of discretionary expenditure you’d think that this income would go down quite sharply during a recession. So it did initially, but the accommodation owners read the news too and have realised that their income should be dropping. This in turn means that they start advertising more which initially showed up in increased numbers of new entries on the sites and now seems to have started to show up in increased adsense revenue.

Definitely peculiar effects, but the question is what’ll happen during the rest of the year?

Sometimes it seems that it’s purely the UK that’s in the doldrums economically at the moment whilst France appears to be sailing merrily along.

However, locally we have seen that both of the local cafés are now closed. Whilst one does close for the winter normally it’s now closed down altogether and its premises have been taken over by the local youth club. The pizza outlet is still open but sporadically whilst the hotel seems to have closed up for the winter at least if not for longer. Perhaps the best indication is the local bakers who have severely cut back on their production and have commented that it’s “bad everywhere”.

Perhaps most tellingly, the toy shop was virtually empty at the peak of the Christmas shopping season.

So, whilst at the top level all seems relatively OK, the bottom level tells quite a different story.

We’re in the midst of our customary Christmas closing and generally lazing around at the moment.

Boxing Day brought us our first serious bought of snow for several years and for a while it was looking like we’d be snowed in for quite a while. As usual the French didn’t even bother to slow down on roads completely covered with ice and snow so I’m sure that the accident figures are well up.

France is a slightly peculiar place to be over Christmas in that they don’t formally “do” Christmas thus the shops were relatively empty on Christmas Eve and indeed the toy shops were eerily empty even the week before Christmas. Just as eerily empty as the toy shops in the UK were a few weeks earlier though that presumably was down to the current recession.

Although the shops do close several hours early (as does the post office) on Christmas Eve and everything is closed on Christmas Day, by Boxing Day it’s back to normal everywhere and you’d think that it was a normal shopping day. The law doesn’t allow them to have sales at the moment so you don’t get the usual post-Christmas sales that you do elsewhere and nowhere do you get the 70%+ reductions that are commonplace nowadays because the law won’t let shops sell stuff at a loss (which should create interesting closing down sales in due course).

On the sale front, we were comparing prices with the UK and found a surprising number of things sitting at around two to three times the UK prices at the current exchange rate. Obviously with all the shenanaghans recently with the interest rates  the exchange rates are not really at their “true” levels and if the price differentials are anything to go by it should be around EUR 2 to the pound rather than the current 1.10 or so which implies that there’s going to be either a major drop in the euro interest rate or massive increases in unemployment in the euro zone.

That’s question that many in the travel trade would dearly like to know the answer to but, as always with such questions, it’s not possible to get a really definitive answer to it in advance.

Holidays and vacations are discretionary expenses which means that they’re among the first to be cut back on when times get tough and this seems to be one of those particular times. However, many people don’t want to skip a vacation so what you could see in this area are people taking shorter vacations, downgrading the accommodation that they stay in, and probably using local or short-haul trips rather than heading for long haul destinations.  We’ve already noticed that this year with the poor exchange rate encouraging Americans to book via a hostel site rather than via a hotel booking site and that will likely become much more common in the coming year.

Added to the problem of getting the money saved or available on credit is the exchange rate problem for overseas holidays. We’ve seen the pound/euro rate moving from around 1.30 to more like 1.00 in a very short period of time ie a holiday from the UK to Europe has risen in price by around 30% even if the base price remained the same (which, of course, it rarely does). Throw in hikes in price from the airlines and that means a substantial rise in the cost of your holiday.

So what will the outcome be? Well, on our listing sites we’ve seen the traffic drop around 80% compared to the same period last year which implies a very substantial drop in bookings in 2009 for many people. Notable too is the increase in the number of adverts we’re taking onboard which implies that the owners are ramping up their advertising early presumably because they’ve had fewer than usual booking enquiries. However, even if both those indications are pointing towards much lower bookings in the year to come it could be that people are simply postponing their bookings until the economic picture clears up.

In reality I suspect that there will be a lot of last-minute bookings in 2009 but that overall there will be a lot fewer people going on holiday which could mean some great discounts on the more expensive holidays if you’re prepared to wait. Unfortunately, it’ll also mean that your choice will be much more limited in 2010 as many travel related businesses will be closing up in the coming year.

I came across a rather comprehensive take on how bad things are in the Spanish economy which makes for some interesting, if long, reading.

Spain is one of those places that hasn’t, yet, featured on the news in terms of problems with their banks which is surprising in some ways as it’s not a country that one would ordinarily consider as having strong banks. However, that’s misleading as the countries with the supposedly strong banks have nearly all run into trouble by now but largely because that strength enabled them to start operating on the international stage and thereby pick up problems that they’d not have gotten had they stuck to their domestic market.

Spain is different in that, for the most part, the banks seem to have acted to pull money into the country but that has created something of a problem since, as the article points out, it has created a climate where there’s been a little too much money knocking around. The problem in Spains case is that the developers have used that money to build far too many houses and now find themselves with a rapidly increasing stock of unsold houses.

The solution? Well, the developers would like more money to build even more houses but that glut of houses means that prices are falling rapidly in reality although that doesn’t show up in official statistics as those are based on estimates of the value of the houses rather than what they’re actually selling for. As elsewhere, the list prices of those houses bears little reality to the price at which they are really selling for and therefore it’s very difficult to get a clear picture of what’s really happening. Despite that, it appears that the fall of 50% or so the previous year will be followed by yet more falls to come.

That continued falling of prices spells trouble for the builders. In accounting terms, they’re presently holding them as trading stock but the falls are forcing them to reconsider them as assets for sale. That might satisfy the accountants but unperforming assets are no good to anyone and, of course, they can’t sell them. Nor can they reduce the prices by as much as normal people could because they’d then be into potentially serious losses.

In fact the solution seems to be to let a significant proportion of the developers go bankrupt and reduce building to more normal levels thus letting the stock of unsold homes find buyers. Not an easy solution but then if, as seems likely, we’re heading into a depression rather than a recession then no solution is going to be an easy one… last time around it took WW2 to get us out of it.