Brazilian Overview Monthly Report - MAY 2021

MAY/21

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

TRAVEL INDUSTRY................................................................................5 LUXURY TRAVEL WITH ILTM...............................................................7

MAIN FACTS The injection of a mountain of dollars to revive the American economy (the most recently reported amount is almost US$ 2 trillion) has had a positive effect in Brazil and has alleviated the Central Bank’s role in protecting the national currency. With a larger supply of dollars in the economy, the American currency weakened against a currency basket, and the real was one of them. The Brazilian currency, which had an average price of R$ 5.56 for each dollar in April and peaked at R$ 5.71 in the month, now oscillates close to R$ 5.30 per dollar.

Restraining the increase in the appreciation of the American currency is one of the reasons for the Central Bank of Brazil to continue to increase the basic interest rate, the SELIC. At the last meeting of COPOM, the Monetary Policy Committee, it was decided that the rate will increase, for the second consecutive month, from 2.75% to 3.50% per year.

The consequence of the permanence of a less valuable dollar is a less pressured inflation.

In April, the National Extended Consumer Price Index, the IPCA, increased 0.31%, exactly one third below the 0.93% in March. Considering the cumulative index in 12 months, the rate is 6.76%. It is too early to verify the effects of this drop in the exchange rate, but it helps to reduce the impacts of advances in the prices of commodities, products quoted in dollars, such as oil, soybeans, corn, ore, among others. In addition, it contributes to the opportunity for entrepreneurs to import products at a lower price, easing production costs, and consumers benefit from it.

The economic sectors in Brazil had a good performance in March when compared to the same month of 2020. However, it is important to note that it was exactly in this month of last year that the coronavirus pandemic hit the Brazilian economy and the indicators started to show significant drops. Therefore, in addition to the comparison with last year, it is also appropriate to compare it with March 2019, in order to have a dimension on which level the sector is compared to a month that had normal conditions in the prepandemic period.

And, in fact, data are positively surprising, given the circumstance of restricted economic activity and circulation imposed in large regions of Brazil throughout March and April. The industry, for example, had an annual growth of 10.5%, and it exceeds 6.2% in March 2019.

In addition to the manufacture of food products, the furniture and electronics industries have helped the sector to recover.

The retail trade had an annual result very close to the industry, 10.1%, but when compared with March 2019, the rate is more modest, 3%.

And the service sector interrupts a cycle of drops, rising 4.5% again in March, and overcomes the pre-pandemic period, March 2019, with an increase of 1.6%. However, the result is being stimulated by the information and communication services, since the services provided to families, such as bars, restaurants, hotels, among others, registered a decrease of 17.3%.

And tourism, which was one of the first sectors to be affected by the crisis, is also being one of the last to recover. According to a survey by FecomercioSP, in March, there was an annual decrease of 17.6% and the accumulated loss in the pandemic reaches R$ 67.7 billion. The most significant decreases occurred in the air transport (-38.4%) and accommodation and food services (-20.1%).

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Overall, the Brazilian economy is recovering better than expected. Job creation helps families to maintain their purchasing power. According to data from the Ministry of Economy, the General Register of Employed and Unemployed Persons (Caged), the balance between hired and fired workers in March was positive in 184,000, and accumulates 837,000 vacancies opened in the first quarter of the year.

Regarding employment, the government issued a Provisional Measure with a new edition of the so-called Bem – Emergency Employment and Income Preservation Benefit –, which, in a simple way, is the negotiation with the employees who have had their employment agreement suspended and reduction of working hours with reduction of wages.

The scenario is still quite challenging. It would be important for the economy that the National Congress accelerated the reform agenda (tax and administrative reforms) and the federal government to be clearer about not exceeding the spending limit. The word predictability is what businessmen expect for them to increase their confidence in the country and increase investments that would generate jobs and income. And at the same time, it is important to accelerate vaccination, so that citizens can circulate and consume again, contributing to the recovery of the economy.

IMPORTANT DATA: Electronic commerce grew 27% in the state of São Paulo in 2020, according to a survey by FecomercioSP and Ebit | Nielsen.

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The March retail trade data indicate an asymmetry in the results. On the positive side, the highlights are the sectors of building materials (33.4%), vehicles (27.6%) and furniture and appliances (11.9%). Conversely, there are clothing and footwear stores (-12%) and supermarkets (-3.9%).

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Inflation in April was 0.31%. The biggest impact came from the health group, due to the 10% drug price adjustment. The food and beverage group that was pressing the IPCA is showing more modest variations. For the next month, what should contribute to the increase in prices is electricity, due to the “red flag”, a higher rate charged when reservoir levels are low.

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Latin America Macro Data

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Unemployment rate

11,00%

14,40%

10,40%

14,20%

4,40%

15,30%

Basic interest rate

38,00%

3,50%

0,50%

1,75%

4,00%

0,25%

Inflation (LTM - oct*)

40,60%

6,76%

3,32%

2,16%

6,08%

2,57%

*LTM - Last Twelve Months Until Dec 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 (ICC) declined for the second consecutive month. In April, the ICC reached 105 points, 7% less than in March and -6.2% compared to the same period last year. Given the instability of the economy and the impact of the second wave of coronavirus contamination, consumers are afraid of losing their jobs and the higher inflation makes it difficult to maintain the consumption pattern.

The Retail Businessmen Confidence Index (ICEC) decreased again and in April the monthly drop was 9%; compared to the same month of 2020, confidence plummeted 24.5%. The city of São Paulo had the highest operating and circulation restrictions throughout April. Only essential businesses could remain open. Naturally, confidence would be affected in the face of this impossibility to sell.

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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TRAVEL AND TOURISM - MAY 2021 Vaccine Tourism, Visa Tourism In May, Brazil still have a slow process of vaccination, but it is advancing. The adult population is expected to be vaccinated in the second semester (between September and October, if there is no delay).

The Brazilian elite, however, saw the offer of vaccines in Florida as a great opportunity, and the tourist flow, via Mexico or the Caribbean, increased considerably, with tour operatos and travel agencies reporting that Vaccine Tourism is real in Brazil.

And vaccination in the United States has an additional attraction, since the main vaccine administered in Brazil, the CoronaVac, is Chinese and has not yet been approved by the European Union or the American government. Thus, Brazilian tourists who have taken CoronaVac could not enter the countries if the borders are reopened.

This is an important mission for our international partners: getting the governments of your countries to approve and validate the CoronaVac, so that Brazilians (and also Chinese, Turks, among other nationalities) do not have problems with international travel.

VISAS: Those who do not have a valid American visa will suffer a little more for this return to travel.

Consulates are again receiving requests from students, journalists and some professionals, but in limited quantity, which opens up an opportunity for Visa Tourism (going to a South American country to submit to application and interview process).

This shows the enormous pent-up demand for international travel in Brazil. Brazilians are willing to travel to obtain visas and to get vaccinated, so that they are accepted in international tourism again.

AVIATION: Some countries, such as Colombia, the Bahamas and some from Eastern Europe (Croatia, Slovenia), as well as Egypt, the Maldives and Mexico, which were already open to Brazilians, are beginning to lift restrictions on flights from Brazil. Latam will return in June with the direct flight São Paulo-Cancún.

Portugal and Spain have also resumed flights and the restrictions on entry of Brazilians are still to be removed.

Among American companies, Delta kept its offering of the last few months, American made specific cuts, such as the flight from Manaus, which is suspended until the end of the year, and the reduction in flight frequencies in other connections with the USA, and United reached 70% of the pre-pandemic offering in May. Copa Airlines flies to Panama from 5 Brazilian cities.

Regarding the domestic air network, there is still a lot of conservatism among national companies and

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perhaps we will see a more robust flight network only in July. With the exception of Azul Airlines, which has invested in more flights in recent months, Brazilian aviation still has few connections among destinations, receding to mid-2020.

The good news is the arrival of a new airline, ITA ─ Itapemirim Transportes Aéreos, part of the Grupo Itapemirim, one of the largest road transport companies in Brazil. ITA starts flying in June, and its network includes 14 Brazilian cities. ITA has plans for international flights only in 2023.

CORPORATE TRAVEL: This kind of travel continues to recover with more caution, but there are already prospects for a second semester with a more consistent volume of trips. Sales at Abracorp, the main association of corporate travel agencies (or travel management companies), fell 68% in the first quarter of 2021.

And there was an exchange of positions in the Abracorp sale by segments: Azul became the leader in domestic sales; Air France-KLM and Qatar, in international sales; and Accor, in domestic hotel sector.

Sales of international hotels fell around 90%.

OPERATORS: The big bet is travel within Brazil and Tourism for vaccinated people in the short term.

As soon as the borders reopen, it is believed that there will be a great flow of tourists to Europe and the United States. The growth of trips to Mexico has been high, which has led Latam to reactivate its São Paulo-Cancún flight.

The good news for the sector is that Tourism associations (Abav, Braztoa and Clia Brasil) reached an agreement with the government for the income tax on remittances abroad for payments for services and tourism products. A provisional measure will take effect in the coming weeks, setting the tax at 6% in 2021 and 2022 (today it is 25%) and rising one point a year until 2025, when it will reach 9%. The measure mainly affects sales to the United States, England, Thailand and Colombia. Some countries, such as Switzerland and the United Arab Emirates, have already accepted the double taxation agreement for this tax, but a decree is still needed to formalize the measure.

CVC Corp, leading travel group in Brazil, predicts a sales boom from September on, and announced block seats in airlines to international destinations such as Tueky, Egypt and Dubai. Domestic travel, including cruises by the Brazilian coast, are the higher bets.

HOTEL INDUSTRY: Hotels and luxury properties are having a good time in the travel recovery, since there are a significant number of Brazilians who were unable to travel abroad and are, thus, rediscovering Brazil for luxury travel.

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Coastal and inland cities, with little agglomeration and a good supply of boutique hotels and houses for rent are those with the best occupancy.

Abroad, the trend will be the demand for villas, private islands, boats, isolated resorts and proximity to nature. The Bahamas has already registered the arrival of affluent Brazilian families, who choose executive aviation (private jets) and accommodation in megayachts or islands.

Brazilian Tourism, according to estimates by CNC - National Confederation for the Trade of Goods, Services and Tourism, has already lost almost R$ 350 billion due to the pandemic.

The sector is ready for the resumption, but it depends on more vaccines, more domestic flight network, more open borders, and the acceptance of vaccines administered in Brazil (Coronavac, AstraZeneca and Pfizer), so that tourists are able to enter countries worldwide.

These and other data can be seen in the fourth survey Pulso Turismo and Covid-19, carried out in April by TRVL LAB, which shows that Brazilians will only travel abroad and even in Brazil after being vaccinated.

The survey was carried out with 369 travelers from Brazil, and there are high rates of people who will not travel or take part in events until they are vaccinated: 76% answered that they totally or partially agree with the statement in the case of events for 100 people or more; this rate remains high for international travel (70% will only do it after vaccinated) and it is also valid for domestic travel (64%).

Download the survey for free, in Portuguese, at trvl.com.br.

LUXURY TRAVEL WITH

WELCOME TO MEXICO ILTM North America will take place in Mayakoba, Riviera Maya on the Caribbean coast of Mexico, 20 - 23 September 2021, the first in-person ILTM event of the year. Hosted by four of the world’s leading and most trusted brands - Andaz, Banyan Tree, Fairmont and Rosewood, the GMs of each recently took part in an ILTM webinar to share how travel to the destination is changing.

Riviera Maya was the first destination to receive the World Travel & Tourism Council (WTTC) SafeTravels Stamp - created for travellers to recognise destinations around the world that have adopted globally standardised health and hygiene protocols. Mayakoba has remained

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open throughout 2020 and as Rosewood MD Daniel Scott points out, the destination was ‘social distancing’ before the term existed. Guests are coming to reconnect with friends and family and also to celebrate – there is a marked increase in requested ‘small’ weddings as well as longer stays and ‘bleisure’ now that people are able to work anywhere.

The luxury travel industry can look to Mayakoba to set the benchmark in understanding what the high net worth is looking for when they return to travel - expectations are still high and time is now more precious than ever. There are increasing numbers of South Americans choosing to stay in this integrated resort, with over 5,000 staff across all the properties. The pandemic has also prompted the hotels to connect with more local, sustainable suppliers and focus on the local community - also important for today’s luxury traveller to know, wherever they are from in the world. As Daniel Scott also says: ““We cannot change the world, but we can make a positive impact.”

TO KNOW MORE ACCESS: https://www.iltm.com/northamerica 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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