Brazilian Overview Monthly Report - NOV 2021

NOVEMBER/21

MAIN FACTS .........................................................................................2 IMPORTANT DATA ...................................................................................3 LATIN AMERICA MACRO DATA .................................................................3 CONFIDENCE INDEXES ............................................................................4

TRAVEL AND TOURISM.........................................................................5

MAIN FACTS To face the challenge of controlling inflation, several countries have followed the path of raising interest rates.

And the Central Bank of Brazil has made a great effort in this direction, raising the SELIC, the economy’s basic interest rate, by 1.50 percentage points, from 6.25% to the current 7.75% per year. The pace established by the BC in previous meetings was a one-point increase in each. However, as Brazilian inflation has been above expectations and has been resistant at a high level, it’s a bitter pill to swallow. At the last meeting of the year, in the first week of December, the interest rate is expected to be at 9.25% per year.

However, it is known that the current inflationary process in the world is one of supply and not of demand.

With the pandemic, there was a disorganization in the global production chain. The stimuli given to reheat the economy took the productive sector by surprise, generally not being able to offer the pre-pandemic quantity.

And that imbalance influenced the prices, as seen in rising prices of commodities.

In Brazil, there is something more specific that has been reported in previous BOMR: water scarcity and its effect on the price of electricity. The need for energy generation from thermoelectric plants traditionally brings a higher cost than that of the hydroelectric source. Now, the cost is increased due to inputs, gas and diesel, for example, which had a price spike last year.

Thus, the interest rate rises in the country has no effect on rainfall, world commodity prices, etc. However, the Central Bank has been seeking to raise the SELIC rate in an attempt to reduce the exchange rate, which remains resilient, fluctuating close to the level of R$ 5.50 per dollar.

And why has the exchange rate not yielded as expected after sequential interest rate rises? Because there are uncertainties about fiscal policy, about meeting the spending ceiling. This is the subject of the moment in Brazil. The government wants to implement the Auxílio Brasil social program, an updated version of Bolsa Família. The benefit amount is intended to be R$ 400 per month (approx. US$ 70) for families in a vulnerable social situation. However, the cost to put the program on its feet would exceed the maximum spending limit, around R$ 30 billion (approx. US$ 5.5 billion), beyond the allowed amount.

The solution found was the articulation for approval of the Proposed Amendment to the Constitution (PEC) of the Precatórios. In short, these are debts already decided by the courts that the government has to pay to citizens and companies, but which can be paid later on, if the proposal is approved, making room in the budget at the time to implement the social program in full. The PEC went through the Chamber and is under negotiation in the Senate and faces difficulties.

Therefore, uncertainty about fiscal responsibility has generated instability in the economy and it is reflected in the exchange rate. Thus, inflation in Brazil remains well above the reasonable level. In October alone, the IPCA, the country’s official index, rose by 1.25% and accumulated 10.67% in 12 months, according to the IBGE. The Transport group, especially fuels, has influenced the rise in prices, with a monthly increase of 3.10% for gasoline, 5.77% for diesel and 3.54% for ethanol. Food and beverages also pressure inflation with an increase of 1.17% in October.

Incorporating tourism into the price analysis, airline tickets increased 33.86% in the month and accumulated 50.11% in 12 months. In addition to the repressed demand of the pandemic, operating costs soared, as is the case with aviation kerosene, which rose 90%, according to the National Petroleum Agency.

Brazilian families are feeling strongly the impact of inflation on their pockets. Even because the job market, despite being improving, continues at a slow pace. The unemployment rate in the country is at 13.2%.

Although it is a more favorable result compared to 2020, 14.4%, the level is still very high, with more than 13 million people looking for a job. And employment would be the best way to provide security and comfort for families to protect themselves in a scenario of rising prices.

And the sectors also presented a loss of strength in the latest data available from the IBGE. The industry, for

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example, retracted 3.9% in September compared to -0.7% in August, always in comparison with the same month of the previous year. Retail trade registered a fall of 4.2% in September against -0.1% in the previous month. This sector tends to have the last favorable bimester due to the injection of the 13th salary, which brings a one-off relief to the family budget and contributes to Black Friday and Christmas sales.

On the other hand, tourism continues to grow strongly. In September, the sector showed an annual increase of 26.2% and accumulated 8.5% in the year, according to data from the FecomercioSP. Some factors explain this result; firstly, the fragile basis of comparison, as sales are still 20% below the prepandemic period, September 2019. However, there is a significant repressed demand that should bring an excellent end of the year and beginning of 2022 for the sector. Aviation, for example, should end the year with 90% of the number of seats offered before the pandemic.

Tourism has also been working hard to find ways to be more profitable in the face of rising fuel, electricity and food costs. For the coming months, there is still a positive wave of pent-up demand, but over 2022 it should lose part of this momentum as a result of the unfavorable economic scenario.

Therefore, what is planned for the near future is an increase in interest rates, a brake on the economy and high inflation. In 2022 we will have the presidential election, which will bring a new turmoil to the economy, putting pressure on the exchange rate and demanding a greater effort from the Central Bank in raising the interest rate. Brazil suffers like all other countries from the consequences of the pandemic, but there is more suffering because things on the tax issue aren’t so organized, maintaining levels of uncertainty and unpredictability ─ everything that businessmen and investors don’t like.

IMPORTANT DATA: In September, 314,000 formal jobs were created in Brazil, and it accumulates a balance of 2.5 million in the year. The service sector stood out in the month, with the creation of 143,500 jobs, followed by Industry (76,000), Retail (61,000) and Construction (24,500). n

The Services sector showed growth of 11.4% in September when compared to the same period in 2020. While segments related to communication and technology surpass the volume of 2019, services provided to families, with accommodation and food, are still 16% below the pre-pandemic level.

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Good projections for Brazilian agribusiness. According to the IBGE, the agricultural harvest of grains and cereals for 2022 should be a record with 271 million tons, an increase of 7.8% compared to 2021.

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The number of indebted families in the country reaches a new record of 74.6% in October, according to data from the National Confederation of Commerce (CNC). The percentage of families with overdue debts, the defaulters, is 25.6%. n

Latin America Macro Data

Argentina

Brasil

Chile

Colômbia

México

Peru

Unemployment rate

9,60%

13,20%

8,40%

12,10%

3,90%

10,00%

Basic interest rate

38,00%

7,75%

2,75%

2,50%

5,00%

2,00%

Inflation (LTM - oct*)

52,10%

10,67%

6,00%

4,58%

6,24%

6,13%

*LTM - Last Twelve Months Until October Legenda: Verde, Vermelho e Preto Os dados ficam melhores, piores e iguais do que no mês anterior.

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CONFIDENCE INDEXES: The Consumer Confidence Index records the first drop after a streak of five consecutive rises. In October, the ICC reached 109.4 points, a monthly drop of 4.6%, but it is 1.6% above the level of October 2020. The positive cycle of the last months was a reflection of the reduction of restrictions and the rapid expansion of vaccination. However, inflation is oppressing and credit is more expensive due to the increase in the interest rate. These factors put pressure on consumer confidence.

The Retail Businessmen Confidence Index (ICEC) remained practically stable with a slight increase of 0.3% in October, moving from 113.5 points in September to the current 113.9 points. However, in the annual comparison the advance was expressive, 18.6%. Even with the inflation scenario, businessmen are more confident about the vaccination and full reopening of activities, allowing them to recover losses during the pandemic and to outline strategies for the near future with more clarity.

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 The Resumption of Travel is a reality in Brazilian Tourism, and leisure will benefit enormously from Brazilians’ desire to travel.

Domestic travel will be even stronger, but most borders are already open to travelers from Brazil (except for Italy and some countries that still don’t recognize all the vaccines authorized by the World Health Organization).

We already see clear incentives from countries like Argentina and Chile; we see Europe more aggressive and present than the United States; and distant countries, but with potential to be visited

by Brazilians, such as the United Arab Emirates, Egypt and Turkey, are having special offers especially via airlines.

International travel is having a slow start and a greater effort will be necessary to make Brazilians to take their desired trip (yes, the desire to travel abroad is stronger than ever), despite the health requirements, the dollar’s high value compared to the real and the economic or health uncertainties that still permeate our minds.

A family of four going on a trip to the United States will spend around R$ 600 according to tests in Brazil and another US$ 600 (yes, dollars) to return home. Besides that, there’s the bureaucratic process of getting tested, waiting for the result, and filling out a bunch of forms.

How to make us forget the exchange rate and the boring and bureaucratic moments?

1 – Add value to the trip, betting on experiences and product combos.

2 – Facilitate bureaucracy, providing a list of laboratories, indicating where to get the tests for free and helping with all forms.

3 – Promote new products and attractions, new hotels, itineraries and experiences aligned with the post-pandemic. Inform tourism professionals, train them, be present in Brazil, encourage customers... It’s been two years without traveling, there’s a lot to see and do, so show that to professionals and travelers.

4 – Bet on partnerships. All companies in the Travel and Tourism chain must come together for a unique and complete journey for the passenger. Don’t stay focused on your product, on your leg of the journey. See how you can interact with other players and help deliver a more fluid and stressfree experience.

5 – Invest in payment facilities, in products and services that can be booked and guaranteed from Brazil, make agreements with more travel operators and pamper customers in this delicate moment of recovery.

6 – Lobby for the acceptance of all vaccines approved by the World Health Organization (WHO), for the easing of visas and immigration processes, for the agility at borders and airports, for everything that can make the traveler enter your country with safety, but also with comfort and agility.

7 – Communicate in Portuguese with tourism professionals and travelers, frequently and consistently, generating trust, exchanging information and a relationship that will extend beyond the trip.

8 – Highlight new products (or routes and destinations less known to Brazilians), explain which niches, personalization and new purposes are within your offer and know what to offer to which type of traveler.

Together, we are going to travel around the world again, as we are already doing in Brazil. It’s slower, harder, more complicated, but travelers are willing to give it a try. How about you? What can you do to help them?

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