As the world’s leading exporter, Germany was hit hard by the global trade collapse that coincided with the 2008-2009 economic crisis. The country suffered a particularly deep recession, followed by a slow recovery. The export powerhouse turned to domestic demand, particularly household spending, to drive growth.
As consumer prices go up, wages are likely to rise, too—a reflection of Germany’s tight labor market. As a result, inflation could reach 2% and stay there through 2019. Meanwhile, the outlook for exports is improving, thanks to a weaker euro and increased global economic activity. Germany’s growth was 1.8% in 2016 and is forecast to be 1.5% in 2017, according to Oxford Economics.
Business travel industry insight
Germans’ overseas trips dominate the country’s international travel market, accounting for three-quarters of all journeys in and out of Germany. They travel most frequently to nearby destinations; Austria, France, Spain and Italy are popular.
Business travel spending in Germany was US$96 billion in 2016. Almost two-thirds went toward domestic trips. The remaining spending on international trips was evenly split between outbound German travelers and inbound overseas travelers. After a strong 2015, when business travel spending increased by 8% year-over-year, growth slowed to just 2.5% in 2016. The cause was a big reduction in spending on outbound travel. Inbound travel continues to fuel business travel spending, which is expected to rise in 2017 and 2018.
Germany’s airline sector is in transition. Air Berlin is undergoing a major downsizing. Lufthansa, the country’s largest airline, continues to develop its Eurowings low-cost division. Lufthansa will face stiffer competition on short-haul routes, as low-cost carriers like Ryanair expand to take advantage of Air Berlin’s contraction.
Hotel chains have a relatively small presence in the German market. But they recognize the potential, particularly for accommodations serving business travelers and attendees of trade fairs and conferences. Primary and secondary cities are gaining attention. IHG is rolling out Holiday Inn Express in Frankfurt, Hannover, Regensburg and Wuppertal. Local chain NOVUM Group operates in key cities like Berlin and Hamburg. Motel One, among Germany’s largest budget chains, has hotels in 17 cities.
- German exports are well positioned to get a boost from pickup in global activity.
- Air Berlin’s retreat in some markets has increased competition on short-haul routes.
- Hotel chains are expanding in Germany, giving business travelers greater access to preferred accommodation suppliers.
- As Air Berlin downsizes and Eurowings expands, Lufthansa Group is gaining strength that may reduce travel buyers’ negotiating position.
- A decade of rising demand has made German hoteliers’ accustomed to increasing room rates. It’s a mindset that buyers may find difficult to overcome during negotiations.
- Inflation is rising, which could increase business costs and dampen consumer spending.