MARCH/22
BRAZILIAN ECONOMY...........................................................................2 IMPORTANT DATA....................................................................................3 LATIN AMERICA MACRO DATA.................................................................3 CONFIDENCE INDEXES.............................................................................4
TRAVEL INDUSTRY................................................................................5
MAIN FACTS As if it wasn’t enough all the issues with the Coronavirus pandemic in the last two years, and recently, the Omicron variant, we have now the outbreak of the war in Ukraine leading to more damaging effects to the global and to the Brazilian economies, mostly in the prices increase. That’s because the conflict pushed commodities prices up, with the oil, for example, reaching 130 dollars per Brent barrel, an indicator for the internal Brazilian gas. The consequences were immediate for Brazil. In mid-March, Petrobras announced a new readjustment of 18.8% and 24.9% in the gas and diesel prices, respectively. Gas, for example, has an importance of 6.5% in the IPCA, the official price index, being the individual item that presents the highest expense among Brazilian families. Although the diesel importance is more discrete, of 0.25%, its effect in the logistic chain is huge, given its massive use by trucks in the highway network for cargo transport. This rise contributed to the increase in this year’s general inflation expectations, from 6% to nearly 7%. Only in this year’s first bimester, the IPCA has accumulated 1.56%. Recalling that the inflation in 2021 exceeded 10%, with 10.06%. In other words, this will be one more year of excessive prices. In face of this scenario, the Central Bank follows the tendency of interest increase and decided to raise the SELIC from 10.75% to the current rate of 11.75% a year, in the meeting of the Monetary Policy Committee (COPOM), on March 16th. However, it’s known that the Brazilian inflation it’s not a consequence of the booming demand, but it derives from the supply shock caused by the pandemic. As interests don’t have an influence on the international oil price, on the rain regimen etc., the work in controlling the inflation will be tougher for the Central Bank. And the solution should be through the valorization of Real, with foreigner investors bringing their resources to Brazil and guaranteeing a real attractive rate of return. In such a way that the Real is on the way to its valorization. It has recently reached the mark of five reais per dollar, considering that not a long time ago it was oscillating around R$ 5.50. Yet, the valorization only served, for now, to mitigate the significant progress in the commodities prices. And inflation has been one of the main obstacles for the Brazilian economy, which is growing at a slow pace, although it grew 4.6% last year, but because of a fragile basis of comparison. The retail business, for example, registered the fifth consecutive annual drop in January, of -1.5%. In addition to credit being more expensive, the families’ income is limited as a consequence of the rise in prices. According to the IBGE data, the real Brazilians’ average income is around R$ 2,500 (about US$ 500), reaching its lowest level since 2012. Adding to this point the percentage of indebted families in Brazil, 76.6% in February, according to data by the National Confederation of Commerce (CNC). And the percentage of families with overdue bills reached the highest level, of 27%, since 2012. Consequently, it reduces – even more – the consumption capability as the families need to save more resources to cover last year’s financial obligations. Despite the improvement of unemployment, from 13.5 million to 12 million, between last year’s 3rd and 4th quarter, it wasn’t enough for income recovery and consumption growth. The industry, in turn, also follows a negative tendency. In January, the industrial production retracted 7.2% in the annual comparison, influenced by both the extractive industry (-6.7%)
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and the processing industry (-7.3%). Yet, the agribusiness suffered from a strong drought in the south of the country at the beginning of the year. According to data by IBGE, the projection for the soy harvest for 2022 is a drop of 8.8%, influenced by a 36.1% pullback in the south region’s production. The trend is also negative for wheat, with a 7.4% negative expectation for the harvest in 2022. On the other hand, corn should be high 33.8%. Still about the agribusiness, the war in Ukraine should push on costs in the countryside, since the prices of fertilizers skyrocketed in the international market and there aren’t any certainties that the Russian provision will be normalized in the medium-term. In general, the Brazilian economy is weaker than expected at the end of last year. It is the “perfect storm”, climate issues (drought on the one hand, excessive rain on the other), the Omicron variant and the war in Ukraine. This scenario causes instabilities and ends up being passed on to prices and credit costs, as countries are acting according to the tendency of raising interests to control the inflation. Brazil will have a hard time getting traction to achieve growth in 2022. The tendency is stagflation, growth near 0% with high inflation, in addition to excessive interests. Only with a controlled inflation will it be possible to decrease interests, and consequently, stimulate investments for a faster economic recovery. The expectation for a better scenario is being left for 2023.
IMPORTANT DATA: February’s inflation was 1.01%, influenced by the food and beverages group (1.28%) and by education (5.61%). This second group traditionally grows at this moment of the year on behalf of the scholar enrollment readjustment. In other words, it is a punctual matter, in contrast to the food and beverages group that should keep pushing on the general IPCA.
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The commerce sales have had sectoral asymmetry. In January, for example, the pharmacy, vehicle, and clothing sectors registered a high of 10.1%, 2.8% and 2.6%, respectively. On the negative side, the spotlight comes from the household appliances sector, of -13.2%, followed by the construction materials sector, -7.8%.
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Latin America Macro Data
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Unemployment rate
8,20%
11,10%
7,30%
14,60%
3,60%
8,60%
Basic interest rate
42,50%
10,75%
5,50%
4,00%
6,00%
4,00%
Inflation (LTM - feb*)
50,70%
10,54%
7,80%
8,01%
7,28%
6,67%
*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 Confidence Index retracts by the second consecutive month and reaches the lowest threshold since August 2020, with 104 points, 4% less than the one registered in January. In the annual comparison there was a retraction of 10.5%. In addition to the Omicron variant that resulted in a boom of cases between January and February, the inflation has taken out the peace of the families in São Paulo, which cannot find opportunities in the labor market to restore the family income. The Trade Entrepreneur Confidence Index (ICEC) registered 116.8 points in February, a drop of 2.4% in relation to January. However, in the annual comparison, there was a progress of 20.3%. At the beginning of last year, the commerce suffered from restrictions on behalf of Covid-19’s second wave. This year, despite Omicron, there weren’t any relevant restrictive measures. In the short-term, there should be a fallback of entrepreneurs’ confidence because of the restraint in the families’ consumption, causing a weak sales scenario. Consumer Confident Index (ICC) and Comerce Businessman (ICEC)
Note: The ICC and ICEC vary from 0 to 200. From 100 to 200 points 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.
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TRAVEL INDUSTRY AMID EUPHORIA AND CAUTION 11 out of the 27 Brazilian states had already, in mid-March, made more flexible the use of masks on behalf of the Covid-19 pandemic. The tendency was that more states in the federation joined the loosening measures, once the vaccination index in the country is high and the cases, especially the deaths resulting from the disease, are decreasing. Open borders and countries that don’t demand the negative test for entrance anymore, focusing on the necessity of the vaccine, is also good news to the Travel and Tourism sector, which however, is still cautious, mainly in relation to international trips. 1 – AIR FARES ON THE RISE The war of Russia against Ukraine has pushed up the fuel price in the entire world, and it is not different in Brazil. The airlines have already said that ticket prices will increase. The dollar price, which even went below R$ 5 in some moments, is already going up. Traveling will be more expensive in Brazil and abroad. The families will prioritize vacation including all its members, and package deals and opportunities. 2 – CREDIT TO BE USED New sales are happening, indeed, but there’s still a lot of credit to be used by passengers who had to postpone their trips during the pandemic. Only at CVC Corp, there are more than R$ 760 million to be used as credit. There are still many people to travel, and the new deadline from the government to use credits or refunds is December 2023. 3 – INTERNATIONAL STILL UNCERTAIN The borders have reopened, the flights are coming back, gradually (distant from the pre-pandemic offer yet), but there are still uncertainties: from the need of a negative test to come back to Brazil to the war of Russia against Ukraine; from the high dollar price to the financial difficulties and the return of inflation. Therefore, international destinations, invest in niches (luxury, family, sports, wellness, interest groups) and be patient: things will go back to normal. But it will take a while. 4 – SOCCER WORLD CUP AND ELECTION YEAR Maybe it is not the best year for international travel: the soccer world cup at the end of the year (November) and offers to buy a new TV are already on; elections will take place a little bit earlier, which causes instability and conservatism in expenses; and also, two carnival celebrations – one in February, what was really positive for internal Tourism and another one in April, which is expected to be even better. This means money to be spent in Brazil, in installments.
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5 – WE ARE STILL IN THE PANDEMIC Many travelers are still awaiting the end of the pandemic to go back exploring the world. Traveling with restrictions and the risk of being tested positive still frightens a lot of people. Conveying safeness and showing health infrastructure for Covid-19, including where to get tested, is crucial. 6 – ASIA CLOSED There’s a type of Brazilian who loves long trips to exotic destinations, but most parts of Asia are still closed for tourists. And the Brazilian likes stopping halfway (USA, Europe, Middle East) to have a second experience on the same trip. Therefore, not going to Asia can influence the trips to the other destinations. 7 – THE VARIANT’S VARIANT News on new variants and the rise in cases in Germany and China don’t help. On the contrary, it discourages and results in traveling plans delays. It is necessary to encourage confidence only from news based in science and trustworthy sources. The tone, amidst all of this, is of optimism with caution, since setbacks will continue to happen and there is a new scenario, despite those who want the return to the pre-pandemic normal scenario. Bring products, new and old revamped products; look in the eyes; gain the trust of travel agents, travelers, and other players in the business; show that traveling is safe and possible, preferably with good offers and opportunities. Until next month, in another BOM Report! 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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