Economic overview
Brazil is the seventh-largest economy in the world and by far the largest in Latin America. While commerce includes a well-balanced mix of manufacturing, agriculture and mineral resources, most business activity is concentrated in southeast, particularly in the São Paulo region.
A decade of structural reforms helped stabilize the economy and enable Brazil’s global integration. Brazil targeted the U.S. and Europe as export markets, and China emerged as a key destination for Brazilian products because of Chinese demand for commodities.
But Brazil’s economy has recently been hit by escalating debt, falling Chinese demand and lower commodity prices. Weaker investment and consumer spending, as well depreciation of the country’s currency, the real, have pushed Brazil into recession. Oxford Economics expects its economy to shrink by 2.5% in 2015 and by a further 1% in 2016.
Business travel industry insight
With 9.5 million visitors in 2014, Brazil is Latin America’s largest international travel market by far. It attracts a third more international travelers than Argentina and twice as many as Chile. Most travelers arrive from Argentina; the U.S. accounts for 10% of arrivals.
Currency devaluation is expected to erode business travel spending by more than 20% this year when spending is valued in U.S. dollars. But the underlying situation is more encouraging. Oxford Economics forecasts 8.5% growth in business travel spending in local currency. Growth should remain above 6% per year through 2020.
Brazil’s hosting of the 2014 FIFA World Cup and the planned 2016 Summer Olympic Games has spurred hotel expansions. AccorHotels is already well represented, with properties in 23 of Brazil’s 27 states. Other international chains are growing their portfolios. The real’s slump against the dollar means it’s a good time to invest, and many local operators want the security of joining with an international hotel brand.
Air travelers largely choose between airlines TAM and Gol for domestic journeys, but rapidly expanding Azul and Avianca Brazil are increasing choice. All four airlines have links to one of the global air alliances. Falling demand and rising costs have recently forced TAM and Gol to make sharp capacity cuts, while their smaller rivals have slowed expansion.
Opportunities
- Despite the problems it’s facing right now, with a gross domestic product of US$1.8 trillion and a population of more than 200 million people, Brazil remains a major market for international business.
- The sharp depreciation of the Brazilian real has boosted to Brazil’s competitiveness in export markets.
- The expanding supply of global hotel chains helps international buyers find hotels their travelers will know and like. Consolidation also allows buyers to negotiate wider-ranging deals covering more destinations.
Challenges
- Brazil’s economy can no longer count on strong exports and low borrowing costs, which drove growth for the last decade. But it’s yet to find alternative catalysts for growth.
- Rating firm Standard & Poor’s withdrew Brazil’s investment-grade status, which means higher borrowing costs will trickle down from government and businesses to households. This could intensify the recession.
- Brazil is in the middle of a political crisis, which is delaying a solution to the country’s debt crisis.
BCD Travel’s Research & Intelligence experts translate the trends driving international business growth in new markets. Talk to your account manager about how BCD Travel can support your company’s growth and get your travelers where they need to be across the globe.
