• Grim European economy heralds revpar drops

How much worse will things become? At the end of April last year the European Commission was forecasting GDP growth of 1.8% for this year within the EU.

Its forecasts out this week now predict a contraction of 1.8% across the 27 countries which include some spectacular drops including 5.0% for Ireland, 2.8% for the UK, 2.3% for Germany and 2.0% for Spain.

If right, this may well lead to the worst hotel trading performance in some markets since the Second World War.

The crumb of comfort offered by the economists at the EC was that the recovery will have arrived by 2010, albeit slowly, with a 0.5% increase. In addition, the conclusions were qualified by risks that were balanced whereas previous forecasts in November and April were qualified with a warning of downside risks prevailing.

But given that even in November the EC was still forecasting a 0.2% growth in the economy in 2009, few people will be betting heavily on the latest forecasts.

Perhaps the most useful thing about the numbers is the pointers it gives towards economies where there will be significant pain and therefore possibly attractive opportunities to acquire distressed hotel assets.

Spain is the country on most people's lips right now. It is forecast to have the biggest contraction of the major eurozone economies and unemployment surging to 16.1% in 2009. Along with Ireland and Greece, Spain is also suffering thanks to downgrades in its sovereign debt ratings.

While the UK is headed for an even sharper economic contraction, its unemployment rate is thought likely to remain below the average for the EU in 2009 at 8.2% compared to the average of 8.7%.

Add this relative employment strength to the marked devaluation in the pound in recent months and the hotel industry should prove more robust than in the weakest EU territories.

There are few bright spots with Eastern Europe looking the best, notably Slovakia, the Czech Republic, Poland, Romania and Bulgaria. The Baltic states, by contrast, are set to suffer.

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