Brazilian Overview Monthly Report - AUG 2023

MAIN FACTS

After a little more than a year, Brazil’s Central Bank has decided to start a new reduction cycle in the economy’s interest’s basic rate, SELIC. The meeting of COPOM (the Monetary Policy Committee) of the Central Bank, at the beginning of August, established the new threshold of 13.25% a year against the previous one of 13.75%. The expectation is for three more meetings to be held still this year, which should lead the rate to a level slightly lower than 12% a year. This was only possible due to the confirmation of inflation control in the country. In July, prices rose, on average, 3.99% in the 12-month accrued, a significant decrease in relation to the 10.07% registered a year ago, according to the IBGE’s IPCA. In the main consumption group of families, food and beverages, in spite of the positive annual accrued, there was a deflation in the last months, like the -0.66% in June and the -0.46% in July.

The reduction in interest will certainly contribute to a more solid and broader growth in trade sales. The sector registered a slight increase of 1.3% in the first semester this year, with monthly oscillations, like the 1.1% decline in May and the subsequent 1.3% rise in June. While sectors such as clothing and furniture present a downturn of -6.3% and -5.6%, respectively, fuel sales increased 9.9% in June and supermarket sales 3.1%. This demonstrates that there isn’t a sequential or uniform growth in retail, probably due to the inhibiting credit scenario. This variable, the credit, is essential not

only for trade but also for the economy as a whole. A featured example is the credit card, which has become a relevant modality for the consumption of families. According to the Brazilian Association of Credit Card Companies, the use of this payment method reached R$ 1.1 trillion in the first semester this year, a 10.1% growth compared to the previous year.

Brazil stands out in the payment system modernization, serving as an example to the world. Besides the increase in the use of credit cards, the payment system by approximation (NFC) excelled, representing almost 50% of in-store sales. Furthermore, PIX, an instant bank transaction, exceeded R$ 1.2 trillion. This operation doesn’t generate costs for consumers or business owners.

Resuming the figures of the current economy, the services continued advancing significantly. In the first semester, there was a 4.7% growth, and in June, the annual increase was 4.1%, with nearly all groups registering positive variations.

The tourism sector follows this trend, registering R$ 112.4 billion in revenue in the first six months of the year, a 14.9% rise in comparison to the previous year, according to what was indicated by the monthly survey of FecomercioSP. Air transportation has been the main booster of this performance, with a 12.3% increase.

Besides inflation, a tighter job market has contributed to the evolution of the economy in Brazil, resulting in the recovery of families’ income. According to IBGE, the unemployment

rate reached 8% in the second quarter of this year, a decrease in relation to the 8.8% of the previous quarter and to the 9.3% of the same period last year.

According to the Central Bank, the IBC-br, a kind of preview of GDP, points out a 3.42% growth for the first semester. Despite the economy’s good performance, some factors limit a more expressive growth. Some of them are related to the negotiations around and voting of two important reforms: the tax reform and the definition of the new fiscal framework, with the change of the expenditure ceiling. Both topics are on the agenda in Brasília

IMPORTANT FACTS:

The Brazilian manufacturing industry registered a slight retraction of 0.3% in the first semester of this year. The sector feels the impacts of the elevated interest scenario.

and should still be finalized this year. With these uncertainties added to the interest increase in the USA, the currency exchange rate increased slightly once more. After oscillating around R$ 4.80 per dollar, it is now nearing R$ 5 again.

Anyhow, considering the long term, the indicators are quite favorable. With the reforms’ completion foreseen up to the end of the year, besides the controlled inflation scenario, the reduction in interest, and a tighter job market, it’s clear that the environment for consumption and investments in 2024 will be more propitious, leveraging the Brazilian economy.

Agribusiness continues with positive numbers, a new record estimation of 308 million tons for the grain harvest, and a 10% increase in the bovine slaughter, which has benefited the consumers and inflation.

Legend: Green, Red and BlackThe data get better, worse and equal than the previous month.

CONFIDENCE INDEXES:

The Consumer Confidence Index (ICC) pointed out 124.5 points in July, a slight reduction of 0.7% in comparison to the previous month. On the other hand, in the annual counterbalance, the ICC registered a solid growth of 17.9%. Inflation, way more moderate this year, along with a tighter job market, has provided for this reoccupation of optimism from consumers in São Paulo. It’s normal that there are oscillations in the short term. However, with the reduction in interest, the medium- and long-term trend is for the optimism to go for a higher threshold. The Trade Entrepreneur Confidence Index (ICEC) is increasing once again in July, 1.2% in the monthly comparative, and has reached 105.7 points. In relation to July 2022, there was an 11.9% decrease. The elevated interest impaired sales at the beginning of the year. Nevertheless, given the new reduction cycle in the basic rate, SELIC, the trend is that there is an acceleration in optimism for the second semester.

Note: The ICC and ICEC vary from 0 to 200. From 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.

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

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

TRAVEL AND TOURISM

The Travel market in Brazil is growing, and it still presents a strong restrained demand, which is focused on visiting destinations within their own country and worldwide. Data from the Brazilian Tour Operators’ Association (Braztoa) proves this upturn, along with the news that international trips are once again representing more revenue in the associate operators.

International travel was the main product commercialized by Brazilian operators during the first semester of 2023. Data from the Braztoa Newsletter shows that travel package deals abroad represent 57.73% of all sales performed throughout the first half of the year.

The growth of international travel is evaluated by the association and by its CEO, Fabiano Camargo, resuming numbers that were seen before the pandemic. “The purchase of international trips is back, and it already draws near the levels we saw before the pandemic. The key to that is the aerial availability, which was resumed”, commented Camargo. Flights are really back, and only a few airlines still present a smaller offer than the one before the pandemic – which is the case of American Airlines, Delta Air Lines, and some European ones. Regarding the Brazilian airlines, Latam hasn’t resumed just one international destination, Israel, and its partnership with Delta leveraged the offer of flights abroad, for example, with a new connection from São Paulo to Los Angeles (already operating), along flights departing from the Latin-American hub in Lima, Peru. The airline will also resume, in October, flights to Johannesburg, in South Africa, which will also get connections by SAA, a South-African airline, which will connect São Paulo to Johannesburg and Cape Town (the latter, presenting direct flights to Brazil for the first time).

The United States is still the number one inter-

national destination as a country (700 thousand Brazilian visitors in the first semester of 2023), but Europe is the sales champion as a continent. The European summer was the champion in regard to tourists coming from the entire world, including from Brazil. Portugal and Italy are the favorite ones. In the United States, Florida, with Orlando on the top of the list, continues to be the most purchased destination, with New York and California gradually coming back to the pre-pandemic threshold.

Check the top-selling destinations by the associated operators to Braztoa below:

DOMESTIC

1 - Maceió (Alagoas), Porto de Galinhas (Pernambuco) and Rio de Janeiro;

2 - Porto Seguro (Bahia);

3 - São Paulo (SP).

INTERNATIONAL

1 - Orlando (USA) and Lisbon (Portugal);

2 - Buenos Aires (Argentina) and Paris (France);

3 - Dubai (UAE) and Santiago (Chile).

EMERGING DESTINATIONS

The Newsletter still presented a list of emerging destinations, which are those that, although not among the top-selling ones, reached sales peaks and surprised everyone with the consistency of demand.

DOMESTIC (EMERGING)

1 - Balneário Camboriú (Santa Catarina);

2 - Campos do Jordão (São Paulo);

3 - Manaus (Amazonas);

4 - Mata de São João (Bahia);

5 - São Miguel dos Milagres (Alagoas);

6 - Trancoso (Bahia)

INTERNATIONAL (EMERGING)

1 - Bangkok (Thailand);

2 - Cartagena (Colombia);

3 - Cusco (Peru);

4 - Mendoza (Argentina);

5 - Porto (Portugal).

It’s worth highlighting that in all previous rankings, Cancun, in Mexico, was included and that the new demand for a visa resulted in its absence in the current list.

THE PULSE OF TOURISM

The survey “The Pulse of Tourism 2023”, carried out with more than 300 travel agents from all over Brazil by the TRVL LAB, an initiative of PANROTAS and Mapie, also revealed the booming sales for the following travel niches:

Sun and Beach Tourism (78.14%);

Cruises (42.29%);

Historical and Cultural Tourism (41.22%);

Water and Theme Parks (29.39%);

Gastronomic Tourism (25.45%);

Ecotourism and Nature Tourism (18.28%);

Religious Tourism (15.05%); Others (11.83%);

Health and Wellness Tourism (10.75%);

Sports and Adventure Tourism (9.32%); Retreats (1.08%).

The TRVL LAB’s survey also brings the destinations that the Brazilian travel agents would like to sell more:

Europe (17.95%)

Asia (15.38%)

The United States (9.52%)

Orlando (4.76%)

The Maldives (4.40%)

Exotic destinations (4.40%)

International destinations (4.03%)

Brazil (4.03%)

Africa (4.03%)

The Caribbean (3.66%)

Find the full survey, in Portuguese, on the website trvl.com.br.

THE CHALLENGES OF THE MARKET

In August, one more scandal involving online sales travel companies exploded in Brazil, with the OTA 123Milhas canceling its trips with flexible dates between September and December of this year (despite the clients having already paid for these trips). The Ministry of Justice is already investigating the company which offered travel vouchers as an offset.

The model is criticized by several players in the market because it’s practically a travel lottery. These OTAs sell future trips, whose flight tickets, oftentimes, aren’t even in the airlines’ systems. Therefore, it’s unknown what the trip’s actual price will be in the future.

This is the second scandal regarding OTAs this year in Brazil, after the crisis of Hurb, and also puts at stake the sales of miles from loyalty programs, which is the base of 123Milhas. Brazil Latam Airlines’ CEO, Jerome Cadier, has once more harshly criticized the model in an interview with PANROTAS. “I feel sorry because, with time, the loyalty programs end up becoming less attractive, with fewer benefits because the rule (of not being able to sell accumulated miles) is swindled. To clarify, ultimately, that these are two different challenges in our market: one thing is completely wrong (selling airline miles), and the other is the lottery that, although legal, has to be avoided (flexible sales without a traveling date)”, said Cadier to PANROTAS, which has already termed the sales of miles as “the aviation’s cancer”.

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