Thanos Papasavvas, a co-founder of analytics firm Equant Analytics, will be the keynote economist for the Mediterranean Resort & Hotel Real Estate Forum, which will be held in Tarragona, Spain, from Oct. 16-18. Ahead of the conference, HOTEL MANAGEMENT talked with Papasavvas about Europe's economic present and future, and how investment could change in the years ahead.
1. How would you describe the current economic situation in Europe?
The Eurozone crisis is behind us with a broad economic recovery taking place. However, what makes this recovery sustainable is the political environment that has stabilised around the continent and has moved away from the political fringes.
More importantly, [an Angela] Merkel-[Emmanuel] Macron alliance over the next four years will re-establish the Franco-German dynamic, which had been one-sided under [Nicolas] Sarkozy and totally missing under [Francoise] Hollande. This should help provide a fresh dynamic for the Eurozone.
The benign global economic environment, the positive rates of growth in Europe, contained inflationary pressures, central bank credibility and political stability all support the climate for investment in Europe. Real estate is a key component of a well-diversified portfolio in this low-yielding environment, particularly in regions hardest hit during the crisis. The search for yield and the focus towards alternative and private markets is a long-term trend expected to continue.
2. Looking at the economies of Southern Europe (Spain, Portugal, Italy, Greece, France): which would you say are strongest and where are their challenges?
Throughout the Eurozone crisis, analysts were bundling together the peripheral countries of Spain, Portugal, Italy, Ireland and Greece as if they all had the same issues. My view was very different to the consensus: The issues in Ireland were predominantly economic and marginally sociopolitical, whereas in Greece it was the opposite. This helps explain the timing of the turnaround and why Ireland—and, more recently, Spain and Italy—have recovered whereas Greece is still struggling.
3. How would you describe the economies of North Africa and the Eastern part of the Mediterranean (Morocco, Tunisia, Egypt, Turkey)?
The underlying economic trajectories have been improving on the back of the global economic environment and central banks providing support and some currency flexibility. However, regional and global geopolitical concerns impact the region, providing underlying uncertainty. Youth unemployment, similar to the Southern European countries, is also a challenge to be addressed.
4. Now that Brexit negotiations have started, what do you expect the impact will be on investment in Europe?
Brexit is less of a concern to investments in Europe than potential trade disputes with Washington, the critical relationship with Beijing and the political relationship with Moscow. Neither the UK nor the [European Union] are likely to pursue a strategy which will adversely impact both regions' economies. The recent proposals from UK Prime Minister Theresa May in relation to the EU citizens rights in the UK are a point in case.
5. To what extent is currency fluctuation a concern for investment in Europe?
Indeed, it is not the direction of the currency that impacts foreign and direct investments as much as its volatility or fluctuation. Currency management, both in terms of which currencies to hold or hedge on potential investments, as well as which currencies to fund the investment from, is key.
With renewed political stability in the Eurozone, a cautious Federal Reserve and generally underowned euro exposures globally, any corrections in the euro to recent lows should be well supported.
The recent geopolitical concerns of the past 18 months have not impacted the underlying economies, thus keeping markets well supported and volatility at multiyear lows. Should this change, policymakers and central banks should be attuned to act in a concerted fashion. The risk is that they don't.
The Mediterranean Resort and Hotel Real Estate Forum (MR&H) is October 16 to 18 at Portaventura in Tarragona, Spain.