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GBTA BTI™ Outlook – Brazil: 2013 H2 (Select Pages)

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The GBTA BTI™ Outlook - Brazil projects aggregate business travel trends over the next eight quarters. The report tracks business travel spending in total and by domestic and outbound segments. It relates unfolding economic events at home and abroad to their resulting impacts on the Brazilian business travel market.

The full report is available for purchase for non-members and at no cost for GBTA members. To learn more about the Global Business Travel Association please visit www.gbta.org.

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GBTA BTI™ Outlook – Brazil: 2013 H2 (Select Pages)

  1. 1. GBTA BTI™ Outlook – Brazil Prospects for Domestic & International Outbound Business Travel 2013-2014 2013 H2 The outlook for Brazilian business travel has been downgraded from our expectation in 2013H1 due primarily to tepid economic growth at home and abroad, particularly through June 2013. We expect total Brazilian business travel spending to grow by only 6.3% in 2013, down from an H1 expectation of double digit growth. In 2014, travel spend will expand by 12.6% as the global economy gains momentum along with Brazilian domestic demand.
  2. 2. GBTA BTI™ Outlook – Brazil 2013 H2 Page 3© September 2013 GBTA and its affiliates. All rights reserved. Members may copy this publication in its entirety for internal company use. GBTA BTI™ Outlook – Brazil PROSPECTS FOR DOMESTIC & INTERNATIONAL OUTBOUND BUSINESS TRAVEL 2013-2014 Executive Summary  Our near-term Outlook for Brazilian business travel has been downgraded from our expectation in 2013H1. The downgrade has been driven by tepid economic growth weakening prospects for domestic travel, particularly in 2013. Compounding this, the continuation of a weak external environment, particularly in Europe is weighing on Brazilian exports and, as a result, international outbound business travel. We expect total Brazilian business travel spend to grow 6.3% in 2013 and another 12.6% in 2014. Our H1 forecast for 2013 and 2014 business travel growth was 14.6% and 16.1%, respectively.  The Brazilian economy continues to gather strength, albeit slowly. After over a year of stagnation, Real GDP began to show moderate growth during the second half of 2012 and has continued this momentum into the first half of this year. GDP advanced at a 2.6% and 6.0% annual rate during 2013Q1 and Q2, respectively. The central causes for both the stagnation and slow recovery include both internal and external factors. External weakness can be attributed to slower growth in key Brazilian trading partner economies, commodity price weakness, and an appreciating Real.  The internal causes for stagnation and slow growth were a mix of old and new, the old including poor infrastructure, low levels of human capital and productivity, and relatively high (inconsistent) tax burdens. New internal challenges include sharp increases in domestic wages couple with slower productivity gains undermining Brazilian competitiveness. Household debt deleveraging has also slowed the advance of private consumption. The combination of these factors will continue to challenge Brazilian growth over the forecast horizon.  Many economic indicators are indicating continuing improvement through 2014 and beyond. Employment growth is rising, as are exports and management confidence. Rising domestic demand, particularly private consumption and investment, will combine with steadily improving exports to re-energize the Brazilian economy. Monetary policy will become less aggressive as the central bank looks to beat back the threat of rekindled inflationary expectations. Meanwhile, fiscal policy will fill the void through public infrastructure investments and some reduced taxation.  Brazilian domestic business travel spending continues to show a strong correlation with job growth. Our statistical analysis over the entire historical period suggests that domestic business travel spend tends to
  3. 3. GBTA BTI™ Outlook – Brazil 2013 H2 Page 7© September 2013 GBTA and its affiliates. All rights reserved. Members may copy this publication in its entirety for internal company use. improvements in manufacturing production and job gains since the economic stagnation of mid 2011- mid 2012. Early in 2013, industrial production crossed the zero line and began to register positive growth versus year earlier results. Employment also appears to have turned the growth corner. May and June figures show improving year-on- year performance after a precipitous fall during the stagnation period. Both indicators have improved primarily driven by domestic demand -consumption (private and government) and private investment. Finally, export growth has turned the corner as well and will add its economic energy to production and job performance through 2014 and beyond. This is good news for domestic and international outbound business travel. Brazilian export volumes also continue to improve in 2013. In June of this year, exports advanced by nearly 15% over year-ago levels, underlining an improving trend that began during late summer 2012. Even after smoothing through typical monthly volatility, the 3- month moving average has passed through the zero line to advance by 2.5%. This is the first monthly increase since May 2012. Exports are rapidly moving from being a drag on overall growth to one where contributions are once again positive. The principal reasons for this welcome change in direction are improving economic conditions in the United States, further stabilization in Europe, and stronger intra-regional trade. Most analysts expect Brazilian exports to continue to strengthen through at least 2014. Given the strong correlation between export activity and international outbound business travel, this is good news for travel suppliers and payments organizations. Our expectation is that Brazilian GDP will advance by about 3.5% in 2013, driven primarily by domestic consumption (particularly private consumption), investment, and advancing exports. The adjacent chart examines the recent composition of Brazilian economic growth, as well as the expected sector contributions for this year and next. Public and private investment, driven by World Cup and Olympic preparations as well as private incentives has snapped back sharply from 2012 declines. Meanwhile, private consumption will improve with rising employment and incomes. Finally, exports will benefit from a slowly improving global economic
  4. 4. GBTA BTI™ Outlook – Brazil 2013 H2 Page 13© September 2013 GBTA and its affiliates. All rights reserved. Members may copy this publication in its entirety for internal company use. The GBTA Foundation’s revised global spending estimates (July 2013) show that Brazil’s business travel industry remains ranked as the 9th largest business travel market in the world. If Brazil can get economic growth back on track, we expect the market to continue to climb the ranks of the top business travel markets in the world, likely surpassing South Korea, France and Italy over the next few years. Brazilian international outbound (IOB) business travel grew significantly faster than domestic travel spend through 2010 but hit the brakes in 2011 and 2012. Rapid growth in export volume drove this trend over the last 10 or 15 years, but the slowdown in the global economy, particularly in some of Brazil’s major trading partners – China, the U.S. and Europe – have led to a softening of IOB volume and spend expansion. Domestic business travel, spurred by the rapid growth in the size of Brazil’s middle class, has also grown aggressively over the last decade, albeit not as quickly as IOB. Domestic business travel has expanded 8.1% per year, on average, over the last 12 years. Brazil continues it race towards expanding infrastructure, but many experts believe that the investment being made is a fraction of what is required to keep up with the pace of growth. Transportation is one key area that Brazil seeks major improvement including the modernization of ports, the expansion of airports and the repair of crumbling highways. The pace and vigor at which this infrastructure challenge is addressed is key to the health of the Brazilian business travel market over the coming years. Business Travel Spending Drivers & Productivity7 Forecasting domestic and IOB business travel spending requires that we find the strongest and most reliable correlations with Brazilian economic and market indicators. The indicators are chosen based upon both statistical testing and economic fundamentals. In the case of Brazilian domestic business travel spending, a strong correlation was found between Brazilian job growth and travel spending. Expanding employment is indicative of rising business confidence, improving top line performance, and increasing traveler populations. Other economic drivers, such as retail sales, business confidence, investment spending, and GDP, also demonstrate strong correlations with domestic business travel spending. In the case of IOB spending, we found strong statistical relationships with merchandise trade, exchange rates, the GDP of principal trading partners, oil prices, the level of foreign direct investment (FDI) and business confidence. Outbound travel is clearly driven by Brazilian trade performance, both on the export and import side of the ledger. Capital flows, notably foreign direct investment (FDI), is also a strong driver of IOB travel spend. Forecasting business travel activity must also take into account underlying secular trends. One of the most critical is travel productivity. Like other input materials and labor, travel’s productivity rises over time. That is, over time less travel spending is required to support each additional sale. In other words, businesses have been successful in extracting more and more value from each business trip. Brazilian business travel productivity has been growing 7 For more information see GBTA BTI™ Outlook Report –Brazil 2012H2. Country 2012 Total Business Travel Spending (Billions $USD) 1 U.S. $262 2 China $196 3 Japan $65 4 Germany $50 5 U.K. $40 6 France $36 7 Italy $33 8 South Korea $31 9 Brazil $30 10 India $22

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