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03/09/2020 By : Nida Kapadia

Overview of the German economy

 

Overview of the German economy and factors affecting consumers and travel:

Written by Albert Jennings, Get it Across, Germany September 2020

The EU still has 160+ countries on its list of international travel restrictions. What has become increasingly confusing to everyone is the difference between a “travel ban”, “travel warning” and “risk area”. Because of the nature of Covid-19 and the unexpected increase in cases in certain cities and regions, entire countries are quickly labeled “risk areas” or placed under “travel warning”. This specifically has happened to Spain and Croatia the past several weeks after EU-internal travel restrictions were lifted mid-June. Each EU country has again resorted to establishing and re-defining its own sovereign travel restrictions, which has made planning and travel execution extremely challenging within Europe. BUT TRAVEL HAS RESUMED within Europe, that is the important first step. Domestic travel within each country has understandably been strong, just like many of our US partners are marketing in their own back yards this summer and fall.

Associated with travel restrictions is the important issue of Covid-19 testing before flying, or upon arrival, or before the return flight, OR upon arrival back home. It is crucial that quarantining 14-days is not mandatory upon arrival OR return. Covid-19 testing stations have been set up at multiple airports throughout the country for FREE testing for passengers coming from “risk areas”. It is most probable that testing costs will be part of the travel price in the future; the general public does not consider it fair to bear the costs for individual risk, particularly when many people have chosen not to travel in order to reduce risk.

This entire issue of shouldering risk has been extremely evident in the debate and discussion about the European Package Tour Legislation and the fact that the tour operator pays 100% of a cancelled trip, also in pandemic situations. Why shouldn’t the consumer bear at least part of this risk, say 10%, for a forced cancellation due to a pandemic?  When is a down payment necessary for a package tour, and how high may the down payment be? When does the tour operator pay its receptive operator and hotels in the destination?

Despite the collapse of Thomas Cook in 2019 and the reverberations this caused in the travel market, travel packaged by tour operators and sold by travel agents remains safe and secure when seen through the eyes of consumer protection. This has become all the more obvious in the face of incremental, unexpected travel warnings and guaranteeing safe travel back home.

As for the economy – like everywhere in the world, Germany has taken a large hit to its GDP, with a drop of 10% in the 2nd quarter. Germany is the fifth largest economy in the world and the largest within the Euro Area. Germany is the second largest exporter in the world and exports account for more than one-third of national output. As such, the export of high added value products has been the main driver of growth in recent years. Composition of the GDP on the expenditure side: household consumption (55 percent), gross capital formation (20 percent, of which 10 percent in construction, 6 percent in machinery and equipment and 4 percent in other products) and government expenditure (19 percent). Automobile and machine production stalled almost completely for several week earlier this year, but have now resumed. Notwithstanding, the trade conflicts between the US and China have negatively affected international trade around the world.

Inflation remains particularly low in Germany. Aside from the wage subsidy program, the German government dropped sales tax / VAT from 19% to 16% through to December 2020 in order to stimulate private consumption. This has not (yet) had the desired effect of increased household consumption, primarily for larger purchases (eg appliances, cars). Food prices definitely rose, but have now stabilized as restaurants re-opened. Unemployment has remained low at 6.4%, largely due to the wage subsidy programs – whereby 600,000 fewer workers were under wage subsidy in June than were in April.

The EUR has gained significantly against the USD since the beginning of the year. As of the beginning of September, 2020, the USD is trading at just under USD 1.20 = EUR 1.00, whereas it was trading at USD 1.10 pretty much all of 2019 through the first quarter of 2020. This means that international travel to non EUR destinations will seem more affordable, particularly in destinations where travel products are priced in USD.

Germans are overwhelmingly supportive of the manner the German government has handled the Covid-19 crisis. There is low support for demonstrations against Corona restrictions, albeit such demonstrations make international news. The travel industry in Germany remains concerned about its future, and inevitably there will be shifts and changes within the tour operator and travel distribution landscape.

 

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