Brazilian Overview Monthly Report - SEPT 2021

SEPTEMBER/21

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

TRAVEL INDUSTRY................................................................................5 LUXURY TRAVEL WITH ILTM...............................................................6

MAIN FACTS The Brazilian economy was practically stable in the second quarter. According to the IBGE, the Gross Domestic Product for the period had a variation of -0.1% compared to the immediately previous quarter. The market expected a slightly better performance, close to 0.2%. In the accumulated result for the last four quarters, the balance was positive (1.8%).

And the projections for the GDP, both for this year and for 2022, are being reduced. The scenario is deteriorating, despite the reopening of the economy almost in its entirety and the significant advance of vaccination across the country. The focus of concern is on inflation, which increased 9.68% in the last 12 months.

Evidently, there is the issue of the commodities price on the international market, such as oil, soybeans, corn, cattle, and that put pressure on food and fuel products. Gasoline price, for example, increased almost 40% in one year and meat price increased 31%.

However, another serious problem that the country is facing and that has already had an impact on inflation is the drought. The lack of rain caused a reduction in the levels of the reservoirs of the hydroelectric plants. ANEEL, the country’s electricity system regulatory agency, has even created a new tariff flag, the “water scarcity”, with an increase of 50% in the red flag tariff, which was the highest until then.

Although the rainy season is approaching, traditionally between the months of November and March, the rains tend to be below average due to the weather phenomenon La Niña.

Thus, without the recovery of water sources, energy production in hydroelectric plants will be limited. The government is contracting energy from thermoelectric plants to supply the need, but at a higher and more polluting cost.

The rise in energy prices is beginning to have effects throughout the production chain, from agribusiness to the retail and services sectors. This ripple effect will keep inflation at a higher level throughout 2022.

Aware of this scenario of accelerated inflation, the Central Bank should once again increase the SELIC, the basic interest rate, from 5.25% to 6.25% per year at the meeting at the end of this month. After this, two more meetings of the Monetary Policy Committee, the COPOM, are scheduled and the interest rate should reach 8.25% or 8.50% by the end of the year if the Central Bank decides to establish a stronger pace to the rate increase.

However, even with the SELIC increasing, the exchange rate is not yielding. Political and economic uncertainties put pressure against the appreciation of the real, which continues to fluctuate close to R$ 5.20 per dollar, which makes more difficult the Central Bank’s objective of easing inflation.

The picture is challenging, however, at the moment, activities continue to show positive results, as was the case with retail trade, which recorded a growth of 11.4% in July when compared to the same month of 2020. Even compared to pre-pandemic July 2019, the balance is positive by 8.8%, with emphasis on the furniture and household appliances, drugstores and building material sectors.

The services sector also recovered from the pandemic with growth of 17.8% in July in the annual comparison and +3.7% compared to July 2019. However, there is an asymmetry in

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the results. While sectors associated with technology, information, communication and land transport registered growth compared to two years before, services provided to families, such as hotels and restaurants, as well as air transport, still suffer sharp drops.

Specifically in the tourism sector, the recovery is evident as shown by the survey by FecomercioSP. In July, the turnover was R$ 12.7 billion, 46.6% above the percentage in the same period last year. However, when compared to the pre-pandemic period in 2019, the balance is still negative (25.8%).

Industry, in turn, presented a more timid variation in July (1.2%), but accumulated 11% throughout 2021.

In a way, it is agreed that in 2021 there will be growth close to 5%, due to the weak basis of comparison in 2020, but also because of the recovery of the economy during the second half of the year.

Eyes turn to 2020 and the scenario is likely to present a weak growth with high inflation. The rise in interest rates combined with the water crisis should cool and limit the Brazilian economy.

At the same time, it doesn’t seem that commodities are likely to return to lower prices and the heated presidential election will probably continue to pressure the exchange rate.

Therefore, in the short term, the economy is on its path of recovery, but there are more uncertainties than certainties for the next year.

IMPORTANT DATA: The preview of July GDP, the IBC-Br [Central Bank Economic Activity Index – Brazil], increased 0.6% compared to May, slightly above market expectations. n

The official inflation, the IPCA, increased 0.87% in August and accumulates 9.68% in 12 months. About 70% of the monthly result came from food (1.39%), transport (1.46%) and housing (0.68%). Among the items that stood out are: meat, gasoline, cooking gas and electricity. n

Due to the drought, there was a reduction of the projection for the harvest of grains and cereals for this year by 1% by the IBGE.

n

Latin America Macro Data

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Unemployment rate

10,20%

14,10%

8,90%

14,30%

4,10%

9,40%

Basic interest rate

38,00%

5,25%

1,50%

1,75%

4,50%

1,00%

Inflation (LTM - oct*)

51,80%

9,68%

4,80%

4,44%

5,59%

4,95%

*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 continues to increase, but in August it was more timid, with a 0.9% change and reaching 112 points. Compared to the same period last year, the increase is more significant, 9.1%. Even with a more difficult scenario, especially with inflation reducing the purchasing power on a daily basis, the population feels more confident with the vaccination progress in the capital of São Paulo and with the almost complete reduction of restrictions on circulation and business operations.

The Retail Businessmen Confidence Index (ICEC) returned to an optimistic level after eight months.

In July, the index reached 107.8 points, a monthly increase of 9% and growth of 44.1% in the annual comparison. It was the best performance since April 2020 and was influenced by the economy’s reopening, reduced restrictions and sales expansion.

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

(ICEC)

Businessman

150 140 130 120 110 100 90 80

ICC

ago/21

mai/21

fev/21

nov/20

ago/20

mai/20

fev/20

nov/19

ago/19

mai/19

fev/19

nov/18

ago/18

mai/18

fev/18

nov/17

ago/17

mai/17

fev/17

nov/16

ago/16

mai/16

60

fev/16

70

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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TOUR & TRAVEL WE NEED HOMOGENEOUS RULES Brazilians are ready to travel abroad and proof of this is the immediate increase in searches and reservations at every border reopening. South America joins European countries, with borders reopening in Argentina, Chile, Colombia, Peru and Uruguay. And the United States will release in the next days the rule for the reopening of its borders, including for Brazilian travelers.

But just as in Europe, the rules are different in South American countries as well. In Chile, for example, a five-day quarantine will be required for visitors. In the United Kingdom, vaccination programs in South America and much of Asia will not be recognized. In France, Coronavac is not accepted, but in Switzerland, it is. Some countries accept the faster and cheaper antigen test; others accept only the PCR test, which is more expensive and time-consuming.

With so many different and complex rules and so many stages of travel, travelers can choose to stay in Brazil until everything is less complicated. And in a continental country like ours, there are options for very varied niches and budgets.

There are great expectations regarding the reopening of the United States borders. Which rules will prevail? To enter the IPW, the main tourism event in the United States, a negative COVID-19 test or vaccination certificate was required, with an immunizing agent approved by the World Health Organization, which includes all vaccines used in Brazil.

MARKET While rules and expectations for the reopening of countries are uncertain, the Brazilian domestic market remains on the rise, with national airlines expecting to have 100% of the pre-pandemic offer in the coming months.

It is also worth noting the expansion of the agreement between American Airlines and Gol, with the former investing US$ 200 million in the Brazilian airline and promising more flights to the United States after the border reopening.

And in the coming days, the sale of the second largest travel group in the country, Flytour, to Belvitur, from Minas Gerais, will be announced. Other consolidations are expected in the Brazilian market, whose domestic market is heated, and has expectations regarding the international market.

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LUXURY TRAVEL WITH GREAT EXAMPLES IN SÃO PAULO In this moment of optimism, marked by the progressive reopening of international borders and the accumulated desire to resume travelling, ILTM Latin America will once again gather the main hotel brands, destinations, airlines, cruise lines and DMCs in São Paulo, between October 26th and 29th, at the Tivoli Mofarrej hotel, to meet 120 most renowned consultants in Latin America for the purpose of rediscovering transformative experiences that reflect current trends in luxury tourism.

ILTM Latin America is proud to receive more than 100 brands committed to providing excellence in Brazil, as well as aligning with the current demands of a planet that calls for conservation and peace. In this edition – albeit more compact – there are plenty of examples of these efforts.

A destination in tune with this zeitgeist is Switzerland, which in its current “Swisstainable Switzerland” campaign strengthens the message of thoughtful consumption, safeguarding its natural treasures. Another pioneer in sustainability is Turismo de Portugal, whose goal is to bring energy and water efficiency as well as waste management efficiency to 75% of tourism providers in the country by 2023.

At the same pace, destinations in Brazil stand out with notable initiatives, such as Pousada Estrela D’Água, in idyllic Trancoso, Bahia, which intends to eliminate the use of plastic by replacing it with eco-friendly alternatives, such as bamboo straws and biodegradable containers made from cassava starch. Between São Paulo and Rio de Janeiro mountains, the authenticity of Fazenda Santa Vitória is attested by the valorization of regional production – from table to tours with local guides. In the largest metropolis in the country, Rosewood São Paulo arrives not only as a project to restore the historical and cultural heritage, the Cidade Matarazzo, but also with the recovery of native vegetation, and a 100% Brazilian design.

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The BLTA – Brazilian Luxury Travel Association – rescues with its more than 40 members the values of exceptional hospitality with the good use of natural and cultural resources of Brazil in order to place it in the olympus of luxury.

Meanwhile, across the seas, Regent Seven Seas Cruises and Oceania Cruises invest in innovative technological resolutions in order to reduce CO2 emissions.

ILTM Latin America invites us to join this journey, maintaining an increasingly prosperous global link in the coming years.

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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