Latin America & Mexico - Market Update Q3

Latin America & Mexico - Market Update – Q3

Brazil Outlook – Q3 2017

Incoming data points to a gradual improvement in the Brazilian economy following the rebound in GDP in Q2. The unemployment rate fell more than expected in the three months up to August, extending a streak of gains seen since March. Business and consumer confidence also improved slightly in September, while the manufacturing PMI pointed to expansion for a sixth consecutive month. Despite the improvement in economic data, political turbulence is casting a long shadow on the strength of the recovery. President Michel Temer is facing another criminal corruption charge, his second in two months. While it is widely expected that Temer has enough support in Congress to avoid a trial—two-thirds of the Lower House must vote in favor of a trial for the case to move to the Supreme Court—the accusations have further dented Temer’s already abysmal popularity and his reform agenda could lose steam as politicians’ distance themselves from him as the October 2018 general election draws near. Despite all the political noise, the government managed to make some progress on its reform agenda and auctioned off several oil blocks and hydroelectric dams in recent weeks.

2017 is being market by the increase on the number of international flights from Brazil to different locations, including Air France/KLM flying from Fortaleza to Amsterdam and Fortaleza to Paris; Air Europa from Salvador to Madrid and also from Recife to Madrid; Alitalia is launching new flights from Sao Paulo to Rome and also from Rio de Janeiro to Rome; Swiss increased the number of seats from São Paulo to Zurich in 55%; Iberia/British Airways increased the number of flights and seats from São Paulo and Rio de Janeiro to Madrid and London; American Airlines that already have 77 weekly flights from Brazil to the United States will start new flights from Dallas to Rio de Janeiro and Miami to Rio and is also adding new flights from Sao Paulo to Miami and the flight to Los Angeles will be daily starting in Jan 2018 (used to be 5 times a week); Avianca Brasil started to fly from Fortaleza to Bogota and launched its first long haul flight from Sao Paulo to Miami and will start to fly from Sao Paulo to New York and Salvador in Bahia to Bogota and from Recife to Bogota; the local airline LATAM launched several new flights such as Brasilia to Punta Cana, increased the number of flights from Sao Paulo to New York, launched new flights from Salvador in Bahia to Buenos Aires and Florianopolis to Montevideo, from Rio they started flying to Orlando and Lima; GOL started flying to Buenos Aires out of Joao Pessoa, Manaus and Belo Horizonte and from Rio to Santiago in Chile and last, but not least, AZUL is increasing the routes from Belém in the northeast to Fort Lauderdale and from Belo Horizonte to Orlando.

Argentina Outlook – Q3 2017

Solid growth in fixed investment and private consumption propelled economic growth in Q2 to a 2.7% annual expansion, the fastest rate in almost two years. The quarterly print taken together with more recent data suggest that the recovery is gaining traction. In July, economic activity expanded at the fastest in over two years and industrial production logged its fourth consecutive increase in August. Noting these economic tailwinds, the government presented the 2018 budget to Congress. The bill envisages GDP growth of 3.0% this year and 3.5% next year along with a significant narrowing of the fiscal deficit. Although 2017’s growth figure was revised down from the previous estimate, latest polls put the government ahead in the runoff legislative elections of 22 October. Growing confidence on Macri’s economic policies is becoming more apparent as recent data, such as a decline in unemployment in Q2 and falling poverty in the first two quarters, suggests that growth is finally permeating across all social strata.

Chile Outlook – Q3 2017

The economic picture is slowly brightening, with business and consumer confidence surging in September and economic activity expanding at a solid pace in August. In addition, copper prices are on a roll, providing the economy with a welcome caffeine injection and giving the government more fiscal space. This allowed President Bachelet to announce in early October a 3.9% spending increase in the 2018 budget, which was more than analysts were expecting. The plans, which will now be debated in congress, are especially focused on broadening free access to higher education, raising teachers’ salaries and continuing the construction of hospitals. Despite these spending plans, the government still expects the fiscal deficit to fall sharply next year thanks to greater fiscal receipts. The new president elected in the coming months will therefore inherit an economy on the mend. According to the latest polls, center-right candidate Sebastian Piñera remains the heavy favorite to assume the role.

Colombia Outlook – Q3 2017

The economy is finally experiencing relief thanks to higher commodities prices and a slow but steady recovery in the external sector, which is benefitting from a weaker peso and improved export competitiveness. Moreover, data for Q3 points to an acceleration in economic growth. Domestic demand should be firmer in Q3 as lower inflation and interest rates boost consumer spending, as evidenced by the pick-up in retail sales in July. Furthermore, the government is gearing up for the parliamentary elections in March 2018 and the first round of the presidential election in May 2018, meaning pre-election spending is on the rise. In addition, investment spending of USD 10.4 billion in 2017 for the 4G road infrastructure program is boosting economic growth. However, widespread corruption involving top government officials, including a former supreme court judge who was arrested on 20 September, continues to undermine stability and is evolving into one of the largest challenges the country is facing moving forward.

Peru Outlook – Q3 2017

The country is going through a phase of political volatility and experienced some short-run economic weakness at the beginning of Q3 but evidence of improved economic dynamics has emerged. Public infrastructure spending, which remained weak in H1, is now supporting the reconstruction efforts following the “Coastal El Niño”. Moreover, data on July economic activity shows a recovery in construction activity—despite a slowdown in overall activity—and construction figures for August point to another month of healthy expansion, on the back of rising public capital spending. This translated into another month of improved business confidence in September and is consequently driving unemployment down. Nevertheless, the troublesome relationship between President Kuczynski and the Congress— dominated by Keiko Fujimori’s Fuerza Popular—led to Kuczynski’s government losing a confidence vote on 15 September following a push for the resignation of the Minister of Education. The reshuffled government, headed by Prime Minister Mercedes Aráoz, will be subject to a confidence vote on 12 October, and is expected to secure Fujimori’s support. Contact for this market is Simone Mariote, based in São Paulo, Brazil [email protected] Mexico - Market Update – Q3

LEISURE TRAVEL

 Aeromexico Airlines along with its partner Delta Air Lines, announced their new route to Salt Lake City Utah, which will fly from Guadalajara City from January 15, 2018.  United Airlines, is once again a pioneer in Mexico by establishing two new seasonal services, the first between Houston (IAH) and Mazatlán City (MZT) and the second between Chicago (ORD) and Mazatlán City (MZT). The latter is a completely new route for the sector  Flight Center Travel Group Limited (FCTG) recently agreed to acquire 100% of Olympus Tours, a leading DMC business in Mexico and is expected to complete the purchase within the next 30 days. The move significantly increases its in-destination offering in key markets in the Americas such as Mexico, the Dominican Republic and Costa Rica.  Delta will launch on December 1st 2017, a daily nonstop service between Los Angeles and Mexico City. The flight (Which is subject to government approval) will connect Delta's operations center at LAX airport with the hub of operations of its partner Aeromexico in Mexico City, which will complement the existing schedule of the Mexican airline between the two cities.  The TOP destinations for Mexicans (Leisure Trips) remains the same: o EUROPE: Madrid, Barcelona, Seville, Florence, Lake Como, Rome, Milan, Venice, London, Paris, Greece and Amsterdam o CANADA: Toronto, Vancouver and Montreal o ASIA: Japan, Tokyo, Hong Kong, Shanghai, New Delhi, Mumbai, Bali o UNITED STATES: New York, Miami, Los Angeles, San Francisco, Vail and Orlando

Contact for this market is Karina Blanchet based in Mexico City [email protected]