• The bears return

Just when it looked as though the economy was turning the corner we have had a slew of bad economic news: jobs data in both the US and Europe; and a further downward revision to UK GDP.

But these are all lagging indicators, and while they are marginally worse than expected, they do not speak for where the global economy is heading.

The unemployment rate in both the US and the 16 Euro zone countries officially hit 9.5% this week. Most forecasters believe it will be into double figures by the year end.

For the US it was a 25-year high and for Europe a 10-year high. Economists had been expecting more modest increases in both cases.

The main fear with the rising jobless rate is that it will mean a weaker recovery as consumer spending power will be restrained.

In the UK, the shock was more to do with the severe revision to GDP growth. The numbers were marked down from the previous 1.9% decline to one of 2.4% for the first quarter, mainly thanks to new data that showed how hard construction had been hit (output from this sector was down 6.9% in the quarter).

Much better news can be found, however, in a growing surge of optimism among forecasters. Last week, Deutsche Bank revised up its predictions for global growth in 2010 from 2.0% to 2.5%.

This is no cause for celebration: the economists pointed out that we can expect to see lower trend growth and higher economic volatility. Rather than the much-hoped for V-shaped recovery, it will instead be a diminishing sine wave: the sharp trough down to the first quarter of this year will give way to a more modest peak in the second quarter of next year and this in turn will lead onto a gentle trough in the second quarter of 2011.

The OECD is also forecasting a return to growth by next year, although it remains pessimistic about the Euro area, forecasting stagnation in 2010 after a 4.8% drop this year.

Previously, it had been forecasting a 4.1% fall in 2009 and a further fall into of 0.3% in 2010. The switch has been towards a shorter but sharper recession.

For hotels, which have historically lagged economic performance, the revpar trough is set to be in the third quarter of this year in the US, according to US-based PKF Hospitality Research.

And while the third quarter will mark the bottom, the outcome for 2010 will still be a decline of 3.5%, the consultancy predicts.

For Europe, which has so far lagged the US in terms of revpar performance during the recession, these figures do not bode well.

The latest research from the World Tourism Organisation shows that Europe and the Middle East have been the hardest hit regions in terms of arrival numbers. In Europe, arrival numbers were down 10% and the drop in the Middle East was 18%. Africa was the only region that showed growth.

Worldwide international tourist arrivals fell by 8% in the first four months of this year. The full year is expected to show a global decline in arrivals of between 4% and 6%.

The International Air Transport Association said that the latest figures for international passenger demand indicated that a floor may now have been reached. In May, demand was down 9.3% on the same month a year ago.

"We may have hit bottom, but we are a long way from recovery," said Giovanni Bisignani, IATA's director general.

The biggest problem was in Mexico, where the swine flu outbreak cause an almost 40% decline in international traffic.


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