Brazilian Overview Monthly Report - AUG 2022

AUGUST/22

BRAZILIAN ECONOMY.........................................................................2 IMPORTANT DATA.................................................................................3 LATIN AMERICA MACRO DATA..............................................................3 CONFIDENCE INDEXES..........................................................................4

TRAVEL INDUSTRY ............................................................................5

MAIN FACTS The global economy should curb throughout 2023, due to the rising in interests to hold back the inflation. The Federal Reserve, for example, increased the American basic rate by 0.75 percentage points, which is currently ranging between 2.25% and 2.5% a year. In Brazil, the Central Bank decided to raise SELIC to 13.75%, in face of 13.25%. However, favorable news is on the way.

The tendency that has been shown through data regarding job positions, sectoral activities, and commodities is lighter, a soft landing, and not an abrupt recession any longer. This has brought a relative tranquility to the economy worldwide, and certainly, to the Brazilian one as well.

Here, the inflation has been on the spotlight with the retraction, in July, of 0.68% in the official price index, being the lowest rate since the 80s. What influenced this performance was the transportation group, through the pullback of 15.45% in gas and 11.38% in ethanol. Besides the downturn in prices of oil in the international market, leading Petrobrás to make subsequent reductions in the price of gas, the government’s measure of establishing a 17% ceiling in the state tax (ICMS), which is applied to fuels, was also crucial to the drop in prices in gas pumps, and consequently, to the inflation.

Previously, the percentage varied according to each state, ranging between 25% to 34%. This measure also influenced another sector, electric power, which contributed to the decline in July’s IPCA (Consumer Price Index).

However, the deflation wasn’t generalized, but focused on the managed items. Out of the nine groups analyzed by IBGE, seven had raises in the month. The food and beverages group, the one with the greatest influence on the index, increased 1.30%, driven by milk and dairy products. The increase in costs to the producer has discouraged production, leading to the offer reduction throughout this year.

In the case of foods, one of the major villains to the inflation throughout the pandemic, and the first semester this year, the tendency is a downturn in the second part of the year, and a more important improvement in 2023. That’s because the commodities that pushed up the prices, mostly at the beginning of this year due to the war in Ukraine, like the soy, corn, and wheat, are showing a reduction in the international market. The impact shouldn’t be immediate to the consumer because several of the purchases made by the industry, and commerce, were made with a higher value. Besides that, with the rise in production and logistic costs, there will be a period for reshaping of trade margins, so we can have, subsequently, a more significant reflection to consumers.

On top of that, the dollar is pressuring less. In a matter of weeks, the American currency went from 5.40 reais to slightly over 5 reais. The tendency is the valorization of the national currency, either due to the global demand for commodities produced in the country, and to the lower tension regarding the global recession, and the interest differential that Brazil offers.

In the national economy, the services have been in the spotlight. According to IBGE, in June, there was an increase of 6.3% in the annual turnover, and it wrapped up the semester with a gain of 8.8%. The greatest rise in the month was the accommodation and food services, of 28.9%. Another activity that draws attention is land transport, with 20.8%, while air transport retreated 3.2%. Consumers are facing a major increase in flight tickets’ prices, an average of 78% in one year, which leads to the “replacement effect” by bus trips.

These segments are linked to tourism, which has had a solid recovery throughout this year.

According to the survey by FecomercioSP, the sector profited R$ 94 billion (approx. US$ 18 billion) in the first semester, with a growth of 33.5% compared to 2021. Service’s inflation, especially air transport, contributed to this growth in revenues. However, it doesn’t clear away the scenario of the heating in leisure and business trips, significantly damaged throughout the pandemic.

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Another important sector in the economy, trade, has had a loss of breath in the last few months.

In June, there was a downturn of 3.1% in the annual turnover, and it accumulated a slight increase of 0.3% in the first semester. There are two factors that limit a retail recovery: interests and nonpayment rates. With the rise in SELIC, the basic rate in the economy, credit has become a lot more expensive and exclusive, impairing the performance of those sectors that depend on financing, which is the case for furniture and household appliances, which decreased 14.7% within the month. And, according to the National Confederation of Commerce, in July, the percentage of families with overdue bills was 29%, the highest level in a historical series that started in 2010.

Nevertheless, there is a more optimistic vision regarding the non-payment rate throughout the second semester. The unemployment rate reached 9.3% in the second quarter this year, the lowest level since the end of 2015, contributing to the rise of income mass. In other words, with more jobs and the inflation signaling a downturn, it generates a gain in buying power, making it possible for families to pay the overdue bills, and return more safely to consumption.

Therefore, the global economy cooling down in a softer way than expected brings fewer instabilities, reduces the pressure on prices, decreasing the bitter dose from the interests’ medication. And with the inflation starting to relent in Brazil, and a more heated job market, the economy should react in a more solid way, corroborating with the Central Bank’s bulletin predictions that it’s in 2% for the GDP this year, above 1.75% of a month ago. Positive signs to Brazil.

IMPORTANT DATA: Commerce has retracted 3.1% in June, but it increases 0.3% a year. There was an asymmetry in the sectorial result. From 10 groups analyzed by IBGE, six had an increase and five a downturn.

Considering the elevations, the highlight is the drugstores’ retail, reaching 11%. In the opposite direction, the furniture and household appliances sector retreated 14.7%.

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The Brazilian cereal harvest is estimated at 263 million tons, a record threshold.

In the first semester, the country generated 1.33 million formal job positions, according to the General Register of Employed and Unemployed (CAGED), in the Ministry of Economy. In the month of June alone, there was the opening of 278 thousand new positions, being driven by the services sector (125 thousand).

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The public debt reaches 78.2% of the GDP, being the seventh consecutive downturn.

Latin America Macro Data

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Unemployment rate

7,00%

9,30%

7,80%

11,30%

3,30%

6,80%

Basic interest rate

69,50%

13,75%

9,75%

9,00%

8,50%

6,50%

71,00%

10,07%

13,10%

10,21%

8,16%

9,28%

Inflation (LTM - Jun ) *

*

LTM - Last Twelve Months

Until June Legend: Green, Red and Black The data get better, worse and equal than the previous month.

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CONFIDENCE INDEXES: The Consumer Confidence Index registered a growth of 1.9% in July, exceeding 103.6 points in the previous month to the current 105.6 points. Since the beginning of the year, the indicator has swung around 105 points. On one hand, people in São Paulo are seeing an improvement in the job market, but on the other hand, the increase in prices has taken away their buying power. The tendency with the downturn of inflation is that there will be a more substantial improvement in trust throughout the second semester.

The Trade Entrepreneur Confidence Index (ICEC) was stable in July with 119.9 points.

However, compared to the same period in 2021, there was a solid increase of 21.3%. The growth in trade sales, especially in the clothing sector, a great part of the surveyed public, has cheered up the business owners, and should contribute to the indicator’s ascension in the second part of the year.

Consumer Confident Index (ICC) and Comerce Businessman (ICEC)

Consumer Confident Index (ICC) and Comerce Businessman (ICEC)

150 140 130 120 110 100 90 80

ICC

May-22

Feb-22

Nov-21

Aug-21

May-21

Feb-21

Nov-20

Aug-20

May-20

Feb-20

Nov-19

Aug-19

May-19

Feb-19

Nov-18

Aug-18

May-18

Feb-18

Nov-17

Aug-17

May-17

Feb-17

Nov-16

Aug-16

May-16

60

Feb-16

70

ICEC

Note: The ICC and ICEC vary from 0 to 200. From a 100 to 200 points, it is considered an optimistic threshold, and below 100 points, a pessimistic one.

Although the indexes are from the city of São Paulo, they follow a tendency of what is happening in the rest of the country since the city, the largest in Brazil, represents 11% of the National GDP.

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VISA, ONCE AGAIN? This month’s most impacting news: Mexico, unfortunately, is demanding once again the visitor visa for Brazilian tourists, from August 18th on, which surprised many people. Who has the American, or the Canadian visa can still enter the country without a Mexican visa, but even so, sales have dropped, and the interest in destinations in the Caribbeans, which don’t require a visa, has increased. The Trade is considering this to be a retrocession by the Mexican government, but as it is well known, the country depends on American Tourism, which partly explains the measure. In Brazil, there are only three locations that have official posts to issue visas to Mexico: in Rio de Janeiro, São Paulo, and Brasília.

Besides that, there is optimism and caution. Yes, we have already reached, on several fronts, the pre-pandemic numbers. Leisure trips since the beginning of the year. Corporate trips from May, or June on (in July Abracorp’s TCMs sold R$ 1 billion, outperforming 2019). The national air network has already recovered. And the hotel business celebrates weeks, and days, with 100% of occupation, especially in destinations that blend leisure and corporate.

However, despite the atmosphere of normality, with the cessation of the use of masks everywhere (except hospitals), there are still numerous challenges, especially due to the high inflation and the election year, with the elections for President, governors, and congressmen, besides the Soccer World Cup taking place at the end of the year.

Gol Airlines showed the first sign of alert, when it announced the 10% reduction in flight offers in August and September, due to the decrease in demand, and to the rise of costs. With a more expensive flight ticket, Brazilians are slowing down, and better planning their escapades, or business trips.

International trips haven’t returned to the 2019’s thresholds yet, both related to leisure and corporate, and the numbers by Abracorp’s TCMs (major association of corporate travel agencies) show that. The prediction is for a recovery happening only between 2023 and 2024. Once again, the cost of flight tickets, and the expenses of aerials impair the upturn.

Still this year, Gol will resume its flights from the Northeast to Buenos Aires, and American Airlines and Delta are predicting more flights between Brazil and the United States.

Still distant from what it was in 2019, the international air network departing from Brazil will take a long time to recover, so the fares will continue expensive.

Another big setback to the upturn is the issue with the lack of workforce, even more specialized.

In Brazil, we don’t have the lack of pilots and aviation professionals, but in all the other areas the issue is critical. In travel agencies, it is very common to have an interest in hiring professionals from the competitors, causing great discord and the lack of good professionals. In the hotel business, the reduction in services, the slow customer ser-

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vice, still using the excuse of the pandemic. In the operators, fewer professionals to talk to the clients and to sell. A challenge that should happen for the next 2 or 3 years, and that affects the quality of the service in the customer call and bookings centers.

In a moment of disruption, this gap is even more evident.

The second semester promises to be, despite all of this, a great sales period, with the national market still prevailing, but the international one being on the spotlight, because of the average ticket, or the desire to return to destinations in the United States, Europe, and South America.

Booming destinations in Brazil: Florida, especially Orlando and Miami, New York, Buenos Aires, Santiago, Western Europe capitals, Dubai, Qatar, the Caribbeans, and the Maldives.

This report is produced by PANROTAS and FECOMERCIOSP to support your business decisions. The contents are valuable assets to Destinations and Travel Organizations, both domestic as well as international. For further information please contact ri@fecomercio.com.br redacao@panrotas.com.br.

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