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Europe’s economic growth engine is clearly sputtering, but that isn’t getting in the way of one of its citizens’ favorite past times — globe-trotting.
“Germans are often regarded as the world champions of travel,” senior Deutsche Bank economist Eric Heymann tells clients in a note on Thursday. Citing the country’s balance of payment data, he said Germans spent a record €96 billion ($104 billion) on travel services abroad, both for business and pleasure, in 2023.
That’s 15% higher than prepandemic levels in 2019 in nominal terms, making up for losses during COVID 19. While rising prices have probably helped boost this number, Heymann said the number is still “remarkable.”
That’s as Germany finds itself in a bit of a rut. Citing “troubled waters” for the eurozone’s biggest economy, the government cut its growth forecast to 0.2% for 2024 from 1.3% — the economy shrank 0.3% last year.
Vice Chancellor Robert Habeck said the economy was slowly recovering from the loss of Russian natural gas after that country invaded its neighbor Ukraine, and while energy costs have eased, it still faces slowing global trade, a lack of skilled workers, and high European interest rates.
Dogged by higher energy costs and real income losses over the past few years, Germans bumped up their savings rate to 11.3% last year from 11.1% in 2022, said Heymann. Germans are not the biggest savers in Europe, though, as the Swiss held that title, at least in 2022.
“Despite these circumstances, however, holiday fever after the pandemic was obviously so strong that private households spent a higher share of their disposable income for traveling abroad than in the years before,” said the economist. That spending was 2.9% in 2023, 2.7% in 2022 and 1.4% in 2021.
However travel receipts from the rest of the world remained 9% below 2019 even with higher prices, therefore the country’s trade balance in travel services hit a record deficit of €62 billion last year, said the economist.
Early data indicates Germany’s spending on foreign travel will rise again in 2024, even as some households need to cut back on spending or even dump holidays altogether. That’s as wealthier households, which often spend rising incomes on travel, will probably offset travel cuts elsewhere, said Heymann, citing strong booking numbers for long-distance journeys at the start of this year.
“Finally, every euro spent for travel services abroad cannot be spent domestically. Thus, German wanderlust is one reason why we expect private consumption to grow by less than 1% in real terms in 2024, despite rising real incomes,” he said.
More gloomy data on Thursday showed Germany’s HCOB composite purchasing managers’ survey coming in at a four-month low of 46.1 for February, far short of the expected 47.5 as its manufacturing sector continues to struggle. A figure under 50 indicates contraction — the PMI measure has been under that watermark for eight straight months.
“The manufacturing sector is dragging down the overall economic
performance more than the services sector can compensate,” said Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank.
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