Brazilian Overview Monthly Report - FEB 2024

MAIN FACTS

The expectation for the Brazilian economy in 2024 continues to be positive, but there are relevant challenges that can change the course of the expected growth, nearly 2%, in case no measure is taken towards the desired direction. The falling cycle in the interest rate is the central pillar in this favorable scenario this year, going from 13.75% a year to the current 11.25% a year, in a sequence of 0.5 percentage point cuts since mid-2023. This reduction pace (0.5 percentage point) should continue in the upcoming meetings of the Monetary Policy Committee, COPOM, with the expectation of returning to one digit by the end of the year. The relatively cheaper and more accessible credit is essential to the expansion of families’ consumption and to increasing the companies’ investment appetite, besides contributing to the reduction of the default risk.

However, what has generated the greatest fear for the year is in the government’s fiscal area, in relation to how this will be done to achieve the zero-deficit announced, in other words, the revenue matching the expenditure. For the moment, there are still countless uncertainties, since the extra expenses for 2024 are estimated at almost 170 billion reais, while the revenue forecast, so far, is half of this amount. In this way, either the government changes the goal and immediately signalizes that it will have one more year with negative results, which will be a bad sign for the economy, or it will double the efforts to increase taxes, with a retaxation, withdrawal of incentives etc., which is also negative for the productive sector.

Without the proper control of the public accounts, there is a pressure on the inflation and on the pace of interest rates cuttings. A positive side of the current

scenario is that prices of products and services are in a decreasing trend. Brazil’s official index, calculated by IBGE, accumulated an increase of 4.51% during the past 12 months by January of this year, given that a year before the percentage was 5.77%. It draws attention, nevertheless, to the food and beverages group, which in January showed a progression of 1.38%.

It tends to be a one-off question, especially due to the reflex of El Niño, which brings an instability to the climate with excessive rain or heat, thus hindering the cultivation of several products, being the Brazilians’ staple foods among them, such as beans (9.70%), and rice (6.39%).

Even with these seasonal increases in prices, which can bring a certain limitation in consumption, the sectors of economy have been demonstrating good results, like it’s the case with the retail trade that registered a 1.7% growth in 2023. The highlight, in terms of variation, is on behalf of the household appliances (5.1%), followed by drugstores and perfume stores (4.7%), and supermarkets (3.7%).

It’s clear, therefore, that in a high-interest scenario, the positive performances weren’t restricted to the basic sectors, but to the ones that are sensitive to credit, in other words, the families with an appetite to contracting debts, both by the need of consuming and by the easiness in getting a financing.

The service sector, the one with the greatest participation in the GDP, wrapped up last year with a 2.3% growth after an increase of 8.3% in 2022, which signals a loss of vitality, which is natural when there is a higher comparison base. And out of the five analyzed groups by IBGE, four of them presented an increase in volume of services in relation to the previous year.

The National tourism had a great result last year

with R$ 190 billion in revenues, which represents an annual growth of 7.8%, according to the survey by FecomercioSP. Nearly all the segments were in the black within the year, with the increase in means of transportation rentals (18.3%), means of accommodation (17.4%) and passenger air transportation (12.7%) being the highlights. Evidently, the rise in costs, mainly flight tickets, contributed to a higher revenue in 2023, but it doesn’t decrease the relevance of the demand’s strong recovery, in leisure or corporate.

As for the manufacturing industry, it remained practically stable last year, with a slight increase of 0.2%.

The economy’s positive cycle experienced in 2023, which should continue this year, is related to a more

IMPORTANT FACTS:

The default rate has been decreasing in Brazil. Data from the National Confederation of Commerce, CNC, points out that, in January, 28.3% of families had some sort of overdue bill, a percentage below the 28.8% in December, and 29.9% from the same month last year.

moderate inflation scenario, and a decrease in the unemployment rate and the abundant credit in the market.

And although the global economy is in a decreasing trend regarding the growth pace, as it’s the case with China, and that generates impacts on the Brazilian economy, mainly in relation to the commodities’ prices falling, Brazil can potentially have a stronger progression, depending exclusively on itself, doing its homework, not only signalizing, but implementing a fiscal control so that there is a more proper environment for a greater reduction in the interest rates, lower risk on the inflation and an incentive to the productive investment. What needs to be done is clear, but the economy talks to politics and the actions taken are not always the desired ones.

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The unemployment rate in the country reached 7.4% in the last quarter of 2023, a decrease in relation to the previous trimester (7.7%) and compared to the same period in 2022 (7.9%).

In 2023, Brazil created almost 1.5 million formal job positions, and more than half of these positions were within the service sector (886 thousand).

Due to climate problems in 2023, the grain harvest forecast for this year was affected. According to the most recent survey by IBGE, the current expectation is 303.4 million tons, 3.8% below last year’s. Although it is a downfall, it is worth emphasizing that last year’s harvest was a record.

CONFIDENCE INDEXES:

The Consumer Confidence Index (ICC) registered technical stability in January, reaching 133.2 points against the 133.5 points from the previous month. ICC has been kept in a range between 130 and 134 points since August of last year, showing that economic conditions are better than a year ago, however, facing difficulties to evolve, which is related to a still relatively low economic growth and with pressure peaks on the inflation, mainly on the most consumed items, such as food and beverages.

The Trade Entrepreneur Confidence Index (ICEC) grew 1.8% in January and increased to 108 points. The positive end-of-the-year sales bring this mood more so at this beginning of the year. Nevertheless, the current threshold is 5.2% below the one seen a year before, which can be understood through two aspects: the costs’ increase, pushing business owners’ profit margins, and the government’s clear challenges in making Brazil grow further.

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

WELCOME TO THE 2024 BOM REPORT

We started the year with a quite heated summer for trips in Brazil, however, with worrying news, which will impact the sector throughout the year. Let’s get to them.

1. Gol Linhas Aéreas, one of the main Brazilian airlines, entered a recovery process through Chapter 11 of the American Justice System. The company had been suffering from high debts and the lack of airplanes, reducing the flight offer in the country and abroad, compared to the pre-pandemic period.

Thus, flight offer in Brazil will still be a challenge, even with Azul and Latam announcing new flights (about 10% growth each). We can expect, consequently, ait tickets to still be high and the challenge with the arrival of new airplanes. There are rumors of a new Airline that could soon be launched in Brazilian skies.

2. Some Tourism companies still suffer from the post-pandemic effect, with debts and challenged management. With the OTAs’ crisis, which is the case with 123 Milhas and Hurb, and the operators’ shutdown like Nova Operadora, besides the Chapter 11 of Gol, which launched a tour operator last year, Smiles Viagens, the market is anxious in relation to what can happen this year, nonetheless, is optimistic regarding the sales and trends.

3. The federal Government wants to withdraw part of the Tourism companies from the benefits extended by the Perse (a program to stimulate the resumption of post-pandemic events), which has generated apprehension in the sector. According to the government, the program would already have reached its goals, and the event sector would already have reestablished its pre-pandemic operation volume. However, business owners claim high debts due to the downtime and request that Perse’s

initial deadline is honored. The political mobilization has worn out the relationship with the government.

4. The crisis with Boeing 737 Max-9 has also affected Brazil, due to Copa Airlines’ flights and the potential future airplane orders from companies that use this aircraft model.

GOOD NEWS

We also have several good news:

• American Airlines joins in Delta Air Lines and announces more flights to Brazil in the second semester. Delta’s flights started at the end of 2023.

• The operators start some launches in the luxury area, with new brands coming in companies that are already traditional in the market, such as Orinter.

• The calendar of fairs and events is very solid, with the editions promising to break records this year. Insite events are stronger than ever.

• PANROTAS celebrates its 50th anniversary in 2024, and among the celebrations we will have the launches of a book telling José Guillermo C. Alcorta’s journey, the company’s founder, of a documentary about the 50 years of PANROTAS and Tourism, and a special magazine to be distributed at Festuris 2024.

• The PANROTAS Next, our regional events, are back this year in 6 cities: Recife (April 22nd), João Pessoa (April 26th) Joinville (June 17th), Maringá (June 21st), Rio de Janeiro (October 7th) and Campo Grande (October 11th).

BUSINESS TRIPS

Business travelers still seek more flexibility and autonomy, and in many cases, they could find that, for instance, when choosing the suppliers or for hybrid work, which is here to stay, but not as we expected before the pandemic.

The TRVL Lab carried out a survey, requested by Trend and PANROTAS, to know more about the business travelers’ behavior. Take a look at the main findings:

1. The absolute majority of the business trips taken is within Brazil, with a frequency from 1 to 4 times in the past 12 months.

2. According to the interviewed travelers, the number of business trips has increased in relation to 2019.

3. The travelers are encouraged by the companies where they work to make hybrid trips, being able to extend their stay in the business destination to also enjoy it for leisure purposes. Nevertheless, they are used to doing that effectively only “sometimes” or “rarely”. But this is already a concrete possibility that tends to grow.

4. The companies also allow their employees to work from anywhere (anywhere office). The majority of those who have this permission also affirm that work remotely only “sometimes” or “rarely”.

5. The companies are used to having well-established travel policies and are more flexible than in 2019, a post-pandemic demand.

6. The majority of the interviewed individuals is heard in relation to their travel preferences and has autonomy in choosing suppliers. The main items on which these travelers have influence are means of transportation, accommodation, and payment methods.

7. Among the biggest issues signaled by the travelers, at the moment of booking, are: few options within the budget allowed by the companies and also little flexibility for some changes.

8. Trust is the main factor for those who purchase trips with consultants and travel agen-

cies, and they believe that these professionals make the process helpful and agile.

9. The most highlighted factors as unsatisfactory in the air travel are the delays, followed by flight cancellations.

10. Location, perceived safety in the accommodation and prices are the most important factors when choosing a hotel. 31.37% affirm that business means of accommodation should offer transfer services to the airport. What else are the suppliers not offering the clients? Have a look at the survey.

11. As main issues related to the hotel business, the high daily room rates, and low-quality internet connection stick out.

12. At the moment of purchasing some kind of additional service, for example a travel insurance, VIP rooms, a transfer service, among others, travelers affirm their choices are based mainly on the safety and comfort these items can add to the trip. The price, easiness regarding the reservation and purchase, and perceived quality are also important factors.

13. Google, platforms’ apps, and online reservation tools provided by the company are the technologies that most help corporate travelers during their journeys.

14. These travelers still point out situations in which the technology could be a solution to improving their trips, among them: providing real-time information, checking-in and checking-out, and payment options.

15. In aviation, Azul was the favorite airline for domestic trips, and Latam for the international ones. In the hotel business, Ibis is the preferred hotel brand of business travelers. Check the full research on www.trvl.com.br

GOOGLE

A survey requested by Google to Offerwise in January of this year shows which are the Brazilians’ travel intentions for the next three months. The insights unveil that, at this beginning of the year:

The Northeast is the favorite destination for the vacation period, being the choice of 31.3% of the travelers;

Right after come the trips to the coast on weekends and holidays ( 30.6% ).

Mountain, cold and good gastronomy destinations have the preference of 21.6% of the respondents;

Resorts/farm-style hotels on weekends, holidays, or vacations were the choice of

20.2% of travelers; Destinations in Latin America ( 12.2% ); Destinations in Europe ( 11.8% )

Among these searches, it’s interesting to note that young people and the A Class have the desire to make at least three or more trips in the next three months, while older people and people from the B and C classes intend to make only one trip during the period.

Safety is the most important item for the travelers. Promotional rates are in second place, alongside comfort; easiness in buying, mainly via apps and technologies, comes right after.

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