Latin America & Mexico-Market Update –Q4, 2017

Brazil Outlook – Q4 2017

A pickup in household consumption and an improvement in investment kicked the economic recovery into a higher gear in Q3. Low interest rates, recovering business sentiment and stronger dynamics in the labor market are buttressing activity. Leading data for Q4, moreover, continues to point towards a steadily improving economy. The manufacturing PMI hit a multi-year high in November, and both consumer and business confidence rose in the same month. While the economy is finally growing after the worst recession in its modern history, many challenges lie ahead, and severe macroeconomic imbalances need to be addressed. The government is embroiled in a last-ditch effort to pass a watered-down version of the pension reform bill before the end of the year—a measure that was first presented almost a year ago. The bill needs a three-fifths supermajority to pass parliament, and it is uncertain if President Michel Temer has the support needed; the window for economic reforms in the country is quickly closing ahead of the October 2018 elections.

Nevertheless, the economy will likely continue recovering in a timid way, leaving behind the recession. Among other factors, the economy will be stimulated by the reduction of interest rates, allowed by the sharp deceleration of inflation, which should close 2017 at 3.7% and 2018 at 4.3%. Low interest rates, improving confidence and historically-low inflation should fuel an acceleration in growth next year. Structural reforms, however, are key to a sustainable recovery and the reversal of the untenable level of public debt. Economists see the economy growing 2.4% in 2018, which is up 0.1 percentage points from last month’s forecast. In 2019, growth is seen edging up to 2.5%.

Argentina Outlook – Q4 2017

President Mauricio Macri’s government scored an important political victory when it signed a landmark fiscal agreement with regional governors on 16 November. The deal aims to reduce Argentina’s significant fiscal deficit by limiting public spending and eliminating distortive taxes that undermine the competitiveness of goods and services in overseas markets. It attests to Macri’s increased political capital following a mid-term electoral victory on 22 October. The signing of the deal came as recent indicators point to stronger growth. The three-month average of monthly economic activity reached 4.3% year-on-year in Q3, suggesting that GDP growth accelerated notably in the quarter on the back of solid domestic demand. Strong domestic demand, however, has resulted in a widening current account deficit. This, coupled with elevated fiscal spending and a slower-than-expected drop in inflation, is putting pressure on the peso and could undermine government efforts to rein in inflation and fiscal spending.

The country is set to grow at a robust pace in the next two years on higher private consumption and fixed investment, the latter of which will be supported by improving business confidence. Economists see the economy expanding 3.1% in 2018. For 2019, growth is expected to reach 3.2%.

Chile Outlook – Q4 2017

The economy continues to rev up, with growth increasing markedly in Q3 on the back of greater mining exports and robust private consumption. The latter was likely aided by improved consumer confidence, which reached a multi-year high in October. However, fixed investment declined for the fifth consecutive quarter in Q3, largely due to a weak construction sector. On the political front, Sebastián Piñera won the first round of presidential elections in mid-November. However, the margin of victory was smaller than expected, giving second-round opponent Alejandro Guillier—President Michelle Bachelet’s center-left successor—a realistic shot if he can rally enough support from other left-of-center voters. Simultaneous parliamentary elections led to a fractured congress. Piñera’s Chile Vamos coalition won the most seats, but fell significantly short of a majority, and the left-wing Frente Amplio party emerged as a serious political force, grabbing 20 seats. As a result, whoever wins the second round in December will have to reach a consensus with other groups to govern effectively, which will likely limit radical policy changes.

Growth should pick up notably next year thanks to greater mining investment, expansive monetary policy and healthy private consumption growth. A stronger regional economy should also boost Chile’s external sector. However, the economy will remain vulnerable to fluctuations in global copper prices. Economists Consensus Forecast panelists see growth rising to 2.8% in 2018 and 3.0% in 2019.

Colombia Outlook – Q4 2017

Growth picked up in Q3, to 2.0% year-on-year from a disappointing 1.2% in Q2. A sustained rise in government spending, along with a recovery in the external sector, powered the upswing. Exports rebounded on greater overseas sales of oil and agricultural commodities. Improved weather conditions yielded an upturn in agricultural output, while the oil sector cashed in on the rally in oil prices. Q3’s performance undershot market analysts’ expectations, however. The economy remains in a weak spot following the collapse of oil prices in 2014–2016, which hurled growth to the lowest levels in eight years. Recent data indicates that momentum will likely be subdued in Q4: Annual growth in exports moderated in October from September, and consumer confidence deteriorated further, signaling that private consumption will remain weak. Following the Q3 release, the government cut its full-year growth forecast for the year from 2.0% to 1.8%.

The economy is expected to accelerate next year on the back of higher private consumption, an upturn in investment, and a surge in oil and commodity exports. On 22 November, Colombia’s state-run oil company, Ecopetrol, announced production and exploration investment plans worth USD 3.5–4.0 billion for 2018, and a target to yield 715,000–725,000 barrels per day next year. Economists panelists expect GDP to grow 2.6% in 2018 and 3.1% in 2019.

Peru Outlook – Q4 2017

GDP growth gained steam in the third quarter, underpinned by stronger domestic demand, especially a turnaround in fixed investment. Public investment rebounded significantly as key infrastructure projects restarted, following disruptions in H1 due to the Coastal El Niño phenomenon and the Odebrecht corruption scandal. Consequently, the fiscal deficit widened in Q3 to 4.6% of GDP, well above 1.4% in Q2. Higher commodity prices boosted private investment in the mining and hydrocarbon industries, which also benefited from a significant increase in long-term foreign investment inflows. The current account deficit shrunk in the same quarter, on the back of higher volumes and prices of mining exports. Monthly data suggests momentum has carried over into the last quarter of the year: In October business confidence rose significantly, credit growth accelerated and mining investment grew robustly. On 30 November, the congress approved the budget for 2018, which comprises measures to increase public infrastructure spending, including through public-private partnerships.

Growth should speed up in 2018, supported by strong global demand for minerals and a ramp up in infrastructure spending. Moreover, private consumption should strengthen thanks to employment and wage gains. However, volatility in global commodity prices is always present in the background. Economists says that GDP will expand 3.9% in 2018 and 3.8% in 2019.

Contact forthis market is Simone Mariote, based in São Paulo, Brazil

LEISURE TRAVEL Mexico

  • Tourism in Mexico closed 2017 with an increase of 15.4 compared to 2016, The growth in connectivity and the opening of new flights have contributed to this good performance; the air connectivity has registered a great dynamism, example of which is that in the period January-October reached the destinations of the country about 152 thousand international flights, which represents a growth of 8.1% (Mainly from China, Tokyo and Canada)
  • Turkey was back on 2017 as a tourist destination for Mexicans with an increase of more than 20%, while in Asia the growth of Japan is observed, with an increase of 17.9% in the arrival of Mexican tourists to that country
  • Markets with good growth in 2017 were Argentina, whose outbound tourism expanded by 19% and Korea with 18.5%. At a more moderate pace, but also important, the markets of Spain grew with 7.9%, Colombia and Canada with 7.7% and Italy with 7.4%
  • During 2017, 51% of Mexicans opted to travel (Leisure trips) to domestic destinations while 49% preferred to travel abroad, these being the most popular destinations in Mexico: Quintana Roo, San Miguel de Allende and Merida; and the TOP International destinations were: Las Vegas, Orlando, New York, Canada, Spain, Paris, Japan and for the first time Cubacaught the attention of the Mexicans. Undoubtedly, the value of the peso against the dollar was modifying the decisions of the travelers about where and at what time of the year to travel

Contact for this market is Karina Blanchet

based in Mexico City

CORPORATE TRAVEL

Mexico Outlook – Q4 2017

  • United States of America Department Sate modify the "warning" in Mexico. This “warning” impacted Mexico in different ways, especially, the state of Quintana Roo, where Cancun and Riviera Maya are located. Right now, hotels of this region, celebrate this new modification, because they could start to host American guests.
  • Aeromexico and EL AL Israel signed a share-code agreement which aims to offer better connections to the various destinations that both airlines offer in different cities like Toronto, Amsterdam, Paris, London or Madrid. As a curious fact, there is a record of 35 thousand people per year that fly from Israel to Mexico, which represents a flow of 50 daily travelers, making this route, an important key for business tourism.
  • China Southern Ailrines continues to fly successfully to Mexico (Guangzhou-Vancouver-Mexico City route), providing a total of 228 seats in three different kinds of services. Right now, is expected the next negotiation with Aeromexico share codes in 12 routes, favoring the connectivity in Mexico from cities like Beijing and Guangzhou.
  • Delta Airlines and Aeromexico will be opening 5 routes and new frequencies will be incorporated in four markets. The new approved routes are León-Los Angeles, Mexico-Seattle and Queretaro-Atlanta. Currently, in approval, Mexico-Portland, Merida-Atlanta. Also, they are looking for a second daily flight for León-Atlanta,Guadalajara-Atlanta and Los Cabos-Los Angeles and, in addition, the third daily flight between Cancun and New York.
  • The number of Mexicans who traveled to Canada in 2017 increased by 50% and the decrease to the United States was 3.8%. This behavior is attributed to several factors such as the elimination of a Canadian visa, the new government of the United States, new air routes to Calgary by Aeromexico, as well as the Interjet incursion with flights to Toronto, Vancouver and Montreal.

Guatemala Outlook – Q4 2017

  • United States of America Department Sate raised to three the "warning" in Guatemala. This “warning” changed from “travel with special caution” to “reconsider to travel”. Right now Guatemala is one step from the highest level that suggests "not traveling." On its website, the entity justifies this recommendation to violent crimes.
  • The German airline “Lufthansa” and the Turkish “Turkish Airlines” will begin operations towards Guatemala in 2018 after the signing of an agreement with Guatemela’s DGAC. The operation of Turkish Airlines will be carried out through an alliance with Copa Airlines, with the authorization of the DGAC. The agreement consists of the use of a shared code that will allow the Turkish company to transport passengers from Turkey to Panama, and, from there, Copa will transport them to Guatemala.
  • Guatemala’s confirmed that the number of visitors in 2017, grew 11% compared to the same period in 2016. Estimated that the foreign currency generated by tourism in the year exceeded US $ 1,200 million. Additionally, the increase in tourist demand is reflected through the collection of the 10% tax on lodging, which in 2017 represents 9.53% more than the previous period.

Costa Rica Outlook – Q4 2017

  • The capital of Costa Rica, San Jose, was highlighted as one of the 10 destinations that will be in fashion during 2018. Trip Advisor unveiled its annual list of the ten best emerging destinations worldwide, this as part of the Traveler's Choice awards. On this occasion the city of San José appears in the sixth place and is the only one in Latin America. The survey is completed by one city in North America, four in Europe, two in Africa and one in Oceania and Asia.
  • The Costa Rican Tourism Institute (ICT) confirmed the celebration of 60 international congresses in Costa Rica, between 2017 and 2021. The total volume of these activities would reach 32,000 participants, with a potential economic impact of almost $ 180 million

Panama Outlook – Q4 2017

  • The Tourism Authority of Panama (ATP) issued 42 operating licenses last year for travel agencies and tour operators. Panama’s city showed the highest record with 24 and Chiriquí with 8. With these new companies the number of businesses dedicated to these activities increases to 333. In turn, in 2017 there was a growth in the lodging service (hostels, hotels, camping and small hotels) with the start of operations of more than 58 in the cities of Bocas del Toro, Herrera, Chiriquí, Veraguas, Cocle, Panama and Western Panama.
  • The tourist exchange initiated with China will boost the tourism of Panama, after the designation of the country as "Approved Tourist Destination" by China. It opens a great opportunity for Panama tourism with this designation, highlighting that Panama has the products that the Chinese market likes, such as history, culture, ethnic groups, nature and the “Canal”. Chinese’s groups to Panama will be carried through authorized Chinese travel agencies that will build tourism packages encouraged by the recent implementation of stamped visas for Chinese citizens and with the start of direct flights by Air China.

Contact for this market is Luis Elizalde

based in Mexico City