What are the prospects and scenarios for Scottish Tourism in 2008?

Key messages
The Scottish and UK economy remains robust according to the Bank of England. Growth in tourism revenues in 2008 will depend to a large extent on the wider economic situation in the UK. Although growth projections have been scaled back in light of the ‘credit crunch’, if the UK economy remains stable through 2008, holidays are likely to remain a priority for many households, and we would expect to see slight growth in 2008 and 2009 of between 1 and 2 per cent.

• Independent research carried out by George Street Research for VisitScotland in September and October 2007 showed that 50 per cent of businesses surveyed believe that they will see an increase in business in 2008.
• Poor exchange rates for the US dollar, housing market deflation and growing consumer debt is likely to impact on North American visitors, although the affluent US visitors that are attracted to Scotland are less sensitive to these pressures. Scottish tourism is not as exposed to the US market as in previous decades. In 1985 46% of international tourism receipts where deprived from the US, today it is 16% as a result of the surge of European short breaks.
• Economic analysis by Oxford Economics supports to the ‘steady state scenario’ for 2008 (see below)
• The Royal Bank of Scotland is forecasting interest rates to fall in 2008, therefore easing pressures on household budgets
• It should get better in the second half of 2008 according to most economic forecasters
• The shared industry ambition to grow revenues from tourism by 2015 is still achievable, however, it will require action from everyone involved in the industry. VisitScotland will play its part by focussing on marketing, providing information and inspiration for visitors and potential visitors and providing quality assurance to visitors and quality advice to the industry.

Scenarios and Prospects
The scenario planning team at VisitScotland has constructed two scenarios about the prospects for 2007 through to 2009 in order to make sense of such uncertainty. These scenarios are called ‘Steady as it Goes’ and ‘Middle Class Squeeze’ respectively and have been tested with leading decision makers and industry to find about the probability of occurrence.

Scenario 1: Steady as it Goes:

• The UK economy remains stable through the second half of the 2007 and 2008, although growth projections are scaled back in light of the Credit Crunch. 2009 is a year of growth
• Inflationary pressure and interest rate hikes in the UK, US and Europe continue to erode household budgets remain stable.
• Holidays still remain a priority for many households, therefore driving annual growth in visits and spending by 1.5% and 1.9% respectively. The value of tourism in this scenario in 2008 is £4.5bn
• North America in 2008 experiences slight decline due to poor exchange rates, but this is compensated by increases from Europe and the Rest of the World

The probability of this scenario occurring is 50-70%

Scenario 2: Middle Class Squeeze:

• Economic slowdown through 2008, with growth in 2009
• The hallmark of consumer spending in 2008 is described as best as ‘thrifty’ and at worst ‘stretched’
• The US economy goes into recession in 2008
• Sharp decline in tourism spending across all markets in 2008, with trips and spending falling 3.71% and 3.74% respectively. The value of tourism in this scenario in 2008 is £3.9bn
• North America markets fall by 10% in 2008 but grow by 5% in 2009

The probability of this scenario occurring is 30-50%

prospects for 2008 (PDF 65Kb)

For further information, please do not hesitate to contact

Chris Greenwood
Strategic Research Analyst
VisitScotland
Email: chris.greenwood@visitscotland.com
Tel: 0131 472 2389