Stable global GDP growth rates and a “red hot” labour market are good news for the aviation sector, according to IATA’s chief economist Dr Marie Owens Thomsen.

Although wage inflation is adding to companies’ costs, the fact that there are more people in work in the global economy than ever before means people are earning and will travel.

Thomsen told last week’s IATA 80^th AGM in Dubai that the current stabilisation of GDP growth in the global economy as around 3.2% is higher than expectations last year.

But, referring to the job-fuelled recovery, she said “in my 30 years I have never seen anything like this”.

“We are somehow living in a job rich economic slowdown in stark contrast to the jobless economic recovery we had in the wake of the global financial crisis in 2009,” she said.

“This is very good for our industry because more people are working in the global economy than ever before. These people are earning wages and incomes.

“Okay, they are diminished by inflation but it’s more important that they are earning those incomes. With this red hot labour market comes higher wage growth.”

Thomsen pointed to latest US figures as a barometer for the world which shows wages “shot up” by 4.7% while inflation was around 3.4%.

“That’s good news on the demand side but it does add to costs on the expenditure side.”

Thomsen said the reason the jobs market is so buoyant is the fact that the world economy has shifted towards services.

Today the vast majority of economies have a majority of economic activity in the service sector. The World Bank estimates the sector to represent 62%.

The service sector overtook the manufacturing sector in the US in the 1960s, so this is a long-term trend that has continued ever since.

Thomsen said “sticky” inflation levels are related to the service sector because that is where the economic pressures are.

But she said that the shift to services has had the benefit of prolonging expansions in the business cycle and “arguably” shortening period of recession.

“It’s more important to not have recessions that maximising GDP growth,” Thomsen added. “Services contribute to the red hot labour market which, on balance, is good for us. It helps business cycles to stay positive.”

Thomsen conceded that inflation remains too high for most central banks to cut interest rates. The outlier is China which looks like it is emerging from a period of deflation.

Delegates were warned to not expect interest rate cuts this year so the cost of running airlines will increase, particularly due to the amount of debt they took on during the COVID pandemic.

A strong US dollar will also damped global demand and also adds to the costs of airlines that do not earn in US dollars, as well as their fuel bills.

There has been a “structural shift” in the crack spread, the difference in the price of jet fuel and crude oil, which used to be $0 to $20 a barrel but since 2022 has been $20 and $60.

This reflects a lack of refinery capacity for jet fuel which is often “not prioritised”, said Thomsen.