An Olympian Economic Recovery for Brazil?
With Memorial Day, the unofficial start of summer, right around the corner, all eyes will turn southward to Brazil and the Olympic Games. While everyone hopes that the games are a success for the host country, Brazil’s economy and business travel industry have both gone through the proverbial ringer recently, and the forecast remains markedly pessimistic for the near term. This is one of the key findings from the GBTA BTI™ Outlook – Brazil 2016 H1 report that was released today and sponsored by Visa, Inc.
The new report has downgraded business travel in Brazil for the fourth consecutive time, with total business spending in Brazil set to decline by 8.5 percent this year. While the latest forecast cited multiple factors that are negatively affecting business travel throughout the country, there is also cautious optimism that 2016 will be the nadir of business travel before a modest recovery in 2017.
Leading up to the Games, Brazil is facing a time of domestic recession, slow global growth, lower commodity prices, underdeveloped infrastructure and numerous other concerns affecting the Brazilian economy. The business travel climate is feeling all of these pressures as well – with the only sign of optimism being that 2016 will be the low water mark for the Brazilian economy before the country sees a modest uptick.
Brazil’s economic prospects continue to worsen as the country attempts to weather the perfect storm of free-falling domestic activity, weak global growth, high inflation, deteriorating fiscal conditions and an uncertain political climate – all with the start of the Olympics in early August looming. Fourth quarter GDP produced the worst annual result since 1991. Despite all of its challenges, Brazil remains in the top ten of global business travel markets, though it may not remain there for much longer.
Some other key findings from the GBTA BTI™ Outlook – Brazil 2016 H1 include:
- Brazilian GDP is expected to decline by -3.0 percent this year followed by an anemic increase of 1.3 percent in 2017.
- Domestic business travel in Brazil continues to be hit the hardest by the Brazilian recession. The recession has been punctuated by recent political turmoil. Further, failing infrastructure, high levels of public debt and a hefty tax burden all cloud the longer-term prospect for domestic business travel in Brazil.
- The Brazilian economy continues to suffer from longer term issues as well, specifically, extremely high levels of public debt and red tape, an overly-burdensome tax structure and poor infrastructure that have led to competitiveness woes.
- Brazil continues to rank last among the top 15 business travel markets in the quality of overall infrastructure.
- Given the country’s economic and political challenges, business confidence rests at record lows. The Business Confidence Index reported by the Confederacao Nacional da Industria (CNI) came in at 36.2 in April, a clear sign of business pessimism (50 represents neutrality).
In terms of business travel within Brazil, spending on Brazil-originated business travel totaled $30.5 billion USD in 2015, down -4.1 percent from 2014 levels. The downgraded forecast coincides with Brazil plunging into recession as the economy contracted -3.8 percent last year – its largest contraction in 25 years.
While these numbers paint a pessimistic picture of the state of the Brazilian economy generally and business travel specifically, fallout from the current political situation, a rise in commodity prices, and/or a successful summer Olympics could help the forecast improve, though these factors all remain unknown at this point. Even if Brazil does produce a successful Olympics, the latest BTI report indicates that the Olympics will have little to no effect on the business travel forecast as business travelers will likely reschedule their trips to not be caught up in the games. However, the economic and infrastructure improvements that the Games could generate for Brazil means that business travel throughout the country will be much more attractive in the near future.