Trends toward “de-globlization” are expected to be a major concern among hoteliers around the world in 2024.
Technology effortlessly flows between markets, countries and continents, but there has been a definite shift and slowdown since the beginning of the pandemic in regard to trade barriers, people flow and supply constraints.
Industry insiders said that understanding how the changes affect the global economy and how investors are navigating such challenges are critical to sourcing and securing investments and opportunities.
Johanna Kyrklund, chief investment officer at Schroders, said the world is in the middle of a shift in the investment cycle.
“There is a trade-off between growth and inflation. The cyclical model points to a slowdown with subdued growth for the foreseeable future, and the baseline forecast expects a recession by the end of 2024, preceded by a landscape supportive of bonds,” she said.
Most observers continue to expect a recession to be mild, if one happens at all.
“Interest rates tend to be stable at the start of a slowdown. And [the end of 2023] is typical of this. The cutting of interest rates in the second quarter [of 2024] is predicted, but that might still be a little soon … as underlying conditions in the U.S. remain strong,” Kyrklund said.
David Goodger, managing director for Europe, Middle East and Africa at Tourism Economics, said at the recent World Travel Market that the inflationary and interest-rate environment will eat into travel demand, even though the sector has proved to be very resilient post-pandemic.
Goodger said hotel demand continues in what the West might see as unlikely places, notably from Russia. Russians are traveling, and though China is struggling, do not expect that to last, he added.
“And India’s middle class is increasing, by 200% in the past 20 years. China is the world’s biggest opportunity, the biggest long-haul market over the next 10 years, with 60 million households entering the demand pool,” he said.
Inflation and interest rates appear not to be affecting the hotel industry, but the pushback from decreasing globalization might.
Andrew Cates, senior economist at Haver Analytics, said the four big macroeconomics trends are geopolitical tensions, climate change, technology and aging demographics.
How investors view those issues individually or as a whole will dictate the flow of capital, and that includes investment in the hospitality industry, he said.
“In 15 years, 20% of the world’s population will be aged 60 and over,” he said.
Cates added that inflation has already stunted global growth.
“The good news is that inflation has peaked. When people talk of spiraling economies, that language is too strong, although things still have a little way to go before they become less uncomfortable,” he said.
Speaking at the Schroders Crystal Ball 2024 Investment Outlook webinar, Alex Tedder, head of global and thematic equities at Schroders, said constrained capital will continue to be evident.
“We’ve very much reached the end of free money. There is no more negative-yielding debt, although surprising is that equities have done far better than one would have expected,” he said.
Tedder said challenges include higher inflation lingering longer than expected, tighter central-bank monetary policies, increased global and trade volatility, a rise in populist politics, and an alteration of global procurement chains, logistics and energy supplies.
Investment in technology and artificial intelligence will provide solutions for many of these ills, but perhaps not all, he said.
As is so often the case, right now, cash is king, Tedder added.
“Stay liquid. There are higher hurdles to invest, a need to diversify more and a need to focus on structural trends that have come to manifest over the past two or three years,” he said.
Those who do not have sufficient liquidity might be in trouble in the next 12 months, Cates said.
“Short-term debt servicing will come to the fore. We’re yet to see the impact from increased interest rates. … A lot of powder was used in the pandemic,” he said.
Tedder said refinancing will be a major play.
“Leverage will play out in the small- and mid-cap range, and there are a lot of corporations in the U.S. that have attractive locked-in rates in the trough, of around 10 years-plus in nature. The worry is in small-cap firms,” he added.
Death of Nations
Nils Rode, chief investment officer at Schroders Capital, said the focus on technology, and specifically on AI, will be responsible for the dawn of what he called the fifth industrial revolution.
“This revolution is the equivalent of an iPhone becoming more intelligent than all humans on the planet combined, and this is maybe 20 or 30 years away,” he said.
Cates said consumers and hotel guests think little about the cost of their mobile phones but are spending less on other material items.
“But they are spending more on services, including travel,” he said.
Speaking at WTM, Rosa Harris, director of Cayman Islands Tourism, said this led to another trend likely to continue playing out in 2024.
“Revenge travel will plateau, so we have to have all our partners understand our strategy to compete in what is a highly competitive world,” she said.
Goodger said he agrees revenge travel in the U.S. has likely run its course, but he added over the next 12 months there will be much of this spending coming out of Europe, and “with China, we’re only just beginning.”