Brazilian Overview Monthly Report - JUL 2020

July/20

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

10 TRENDS IN THE PRE-RESUMPTION PHASE..................................5 PANROTAS..............................................................................................6

MAIN FACTS Although the numbers of people infected with coronavirus in the country continue to expand, gaining prominence in the national and international media, the Brazilian economy shows signs of leaving the ICU and that the worst part has already passed. The first sign is the retail sales, which grew 13.9% compared to the period between May and April. Compared to May 2019, the result was negative by 7.2%, well below the -17.1% seen in April.

In April, for example, close to the initial moment of the pandemic, when the population was waiting for information regarding protective attitudes, a large part of retail industry across the country was partially or totally closed. In May, with greater clarity about the new virus, businesses began the process of gradually reopening with the hygiene and social distancing protocols. This was one of the factors for the retail sector to achieve a relatively better performance in the month of May. Another important point that contributed strongly to mitigate the drop in sales was the emergency aid from the government in the amount of R$ 600, extended for another two months with the same value. The funds are reaching around 65 million needy people, individual microentrepreneurs, self-employed people, workers in informal sector, among others. Families use a portion of these funds to pay daily bills and debts, but also in retail sector to buy essential and even durable goods.

Supermarket sales grew 9.4% in May and the home appliance sector, for example, went from a 33.3% drop in April to -4.1% in May. The Federal Revenue Service corroborates this recovery scenario by disclosing that there was a 10.3% growth of electronic invoices issued in June compared to the same period of 2019.

June inflation is another sign that the demand is starting to increase gradually. The general index was 0.26% against a 0.38% decrease in May. Two groups stand out: food (0.38%) and transport (0.31%).

With this data, retail sales and inflation, the pace of decisions at COPOM meetings can change, where the basic interest rate of the economy, the SELIC, is defined. Currently at 2.25% per year, the rate was expected to reach close to 1.5% by the end of next year. Now, it tends to have a smaller cut and stay at 2% per year, which is already a big gain for the economy, with the lowest interest rate in history, contributing to a cheaper credit market.

The scenario of less uncertainties and more favorable numbers creates space for the rise of the Brazilian stock market, which has again surpassed the mark of 100,000 points and the dollar starts oscillating less, positioning itself around R$ 5.40 for each dollar. If, on the one hand, it is bad for importers, for exporters, especially in agribusiness, it is being more profitable. Besides that, IBGE announced that the grain harvest is expected to reach a new record in the country this year, with 247 million tons.

Bringing a little of the external scenario, the proximity of the American elections will add an element of risk, as some polls show the opposition candidate, Joe Biden, above the current president in voting intentions. Although it does not represent the proportion of the electoral college, as is the American electoral structure, it indicates another polarized dispute. In addition to internal challenges, there is permanent tension with China, which should be used politically by the current president in the electoral race.

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In short, the Brazilian economy is showing signs of recovery and the worst part (the rock bottom in April) is over. Even so, it will be a slow and gradual process, but measures adopted by the government, such as emergency aid, credit lines with special conditions and the Provisional Measure to preserve jobs, are making the impact of the pandemic less intense in the economic and social areas. A less disorganized economy is essential to stimulate the recovery. However, the year is considered lost, with a GDP drop nearly 7%, with a growth in the last quarter of the year, to start 2021 with expectations of more solid and sustainable growth.

IMPORTANT DATA: Inflation in June, as already mentioned in the main analysis, increased 0.26% after falling 0.38% in May. In the 12-month period, the balance is positive at 2.13%. The Food and Transportation groups were responsible for 54% of the monthly increase, with the respective changes of 0.38% and 0.31%. What draws attention is that the increase in the Food group was due to products widely consumed by families, such as meat (1.19%), rice (2.74%), beans (4.96%) and milk (2.33%). In Transportation, gasoline (+3.24%) was the driver of the group’s price increase.

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Sales in Brazilian retail sector fell by 7.2% in May in the annual comparison. Despite the negative performance, the variation is more modest than the -17.1% recorded in the previous month. Adding the sector of Vehicles and Construction Materials, called “expanded retail”, the decrease in the month goes to 14.9%, driven, mainly, by the sales of cars that become less inviting at this moment of pandemic. n

The industry increases 7% compared to April, but has a decrease of 21.9% in the annual comparison. Among the sectors, those that are growing compared to May 2019 are: Food Manufacturing (+ 2.9%), Oil (+ 1.6%) and Pharmaceuticals (+ 1.1%).

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In May, the Services sector registered another sharp decline of 19.5%, after a decrease of 17.3% in April. Unlike the retail sector, which, even with social isolation and circulation restrictions, manages to have a rhythm of sales, services still suffer a lot from the pandemic, especially those provided to families, including Lodging and Food, which decreased 61.5%. Another significant drop was also linked to the tourism sector, with a negative variation of 76.1%, in Air Transport. n

The grain harvest in 2020 will hit a new record in volume, according to a survey by the IBGE. There should be an increase of 2.5% compared to 2019, or an additional 6 million tons, to the current estimated volume of 247.4 million tons. The highlight is the soybean harvest with growth of 5.6% and wheat with an increase of 33%.

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Since March, 1.5 million formal jobs were closed, according to the Ministry of Labor. The worst month was April with a negative balance, considering contracted and dismissed workers; it passed from 900 thousand to -332 thousand in May. Only the agricultural and cattle raising sector managed to open vacancies (16,000) according to this latest disclosure.

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Latin America Macro Data

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Unemployment rate

10,40%

12,20%

11,20%

21,40%

3,50%

13,10%

Basic interest rate

38,00%

2,25%

0,50%

2,50%

5,00%

0,25%

Inflation (LTM - jun*)

43,40%

2,13%

2,63%

2,19%

3,33%

1,76%

*LTM - Last Twelve Months Until May (Except Argentina and Peru) Legend: Green, Red and Black The data get better, worse and equal than the previous month.

CONFIDENCE INDEXES: The Consumer Confidence Index (ICC) showed a slight increase of 3.7% in June and registered 100.4 points. It is important to note that the ICC suffered a sharp drop of 23.8% between the months of February and May. It is natural, therefore, that there is an adjustment of confidence, but this relative improvement can also be credited to the scenario of more clarity regarding the crisis unfolding, measures and protection, in addition to the emergency aid that has given a boost to families to consume.

The Retail Businessmen Confidence Index (ICEC) decreased by 35% between May and June, from 93.8 to 61 points, the lowest level in the historical series, which started in 2012. The ICEC has accumulated a decrease of 51.3% since March. The trend is that the indicator will start to recover next month given the gradual opening of the retail sector in the city of São Paulo.

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

Note: The ICC and ICEC range from 0 to 200 points. The level from 100 to 200 points is considered optimistic and below 100 points, pessimistic.

Although the indicators are from the city of São Paulo, they follow the trend of what is happening in the rest of the country since the largest city in Brazil represents 11% of the national GDP.

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10 TRENDS IN THE PRE-RESUMPTION PHASE OF TRAVEL IN BRAZIL 1 - COMPANIES START TO GET TOGETHER AND SEEK PARTNERSHIPS

Some agreements have already been announced, such as Sete Mares Turismo and Uniglobe (a joint venture in corporate travel) and Grupo Arbo and MH Tour (in which the latter starts to use the structure of the first and provide advice on LGBT products). But we know that more companies are looking for partners that complement their business, such as luxury + corporate travel.

2 - INDEPENDENT PROFESSIONALS

Considering the high level of unemployment and small travel agencies having to rethink their business, the number of independent consultants and companies creating structures to accommodate them grows. The main area of expertise is luxury, but also cruises and other niches/ segments.

3 - SMALLER COMPANIES

All companies are paring down their structures (which leads to the previous item), but we will see even more dismissals and simplified structures, with the disappearance or merger of brands.

CVC Corp, the largest tourism company in Brazil, dismissed 180 employees in June, after restructuring the board of directors in May. The same thing occurred with OTAs, corporate travel agencies, consolidators, among others.

4 - EVENTS MOVED TO 2021

Most events, such as the Abav Expo, Equipotel, ILTM Latin America and the Fórum PANROTAS, were moved to 2021, with some online or hybrid actions scheduled for 2020. In September, the Brazilian Travel Agencies Association (Abav) will hold an online event in place of its fair, the Abav Collab. Corporate travel and events should only return with greater volume next year.

5 – INTERNATIONAL TRAVEL ONLY IN 2021

Although most airlines will be back until August or September, operations will continue to be limited (with fewer flights compared to the pre-pandemic period). International leisure travel should return only in 2021 and there are already sales in this regard.

6 - LGBT ON THE RISE

Some operators, such as Orinter, Visual (which belongs to CVC Corp) and Diversa Turismo have already announced the creation of a line of products for this audience, which many consider to be one of the first to resume travel.

7 - LUXURY AND CRUISES

Luxury travel within Brazil and abroad is another focus of travel agencies and many of them are investing in this segment. And there is a great repressed demand for ocean cruises, which are taking a long time to return, but whose sales are good for 2021.

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8 - BRAZIL BY CAR

Car trips to small hotels have been the preference of Brazilians who want to travel, but safely.

Gradually the airlines are increasing their networks and we see that plans for national air travel begin to return, especially towards the end of the year.

9 - INFORMATION STIMULATES

Travel agencies have seen that articles, videos and materials talking about destinations, attractions and enterprises, showing that protocols and post-quarantine experiences have an immediate effect on searches, queries and even sales. Therefore, being present and informative is essential nowadays.

10 - ACCOMMODATION OF ALL TYPES

A survey conducted by Booking revealed that Brazilians prefer to stay in hotels and inns. But seasonal home rental associations have also seen an increased demand, especially for those who want to get away with their family and keep working. The important thing is to give a sense of safety on health protocols in the properties and destinations.

PORTAL PANROTAS

Most accessed subjects on our website indicate where the focus of tourism professionals is:

1 – Resumption of aviation 2 – Resumption of hotel business 3 – Florida theme parks 4 – Cost-cutting, dismissals and company restructuring 5 – Services following new protocols and procedures at destinations 6 – Earning opportunities and new post-pandemic sales 7 – Research and statistics on consumer behavior and intention to travel 8 – Government measures to help companies 9 – Resumption campaigns 10 – Videos of businesses and attractions reopening

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