Lucy Hughes Jones
(Australian Associated Press)
Australian travellers headed for the Olympics will get even better bang for their buck as Brazil’s recession-hit economy goes further down the gurgler.
Over the past two years the Australian dollar has risen more than 28 per cent versus the Brazilian real.
In fact, the Aussie has hit its best level in about a decade, Tim Harcourt, the JW Neville Fellow in Economics at the UNSW Business School says.
But as Rio prepares to host the world’s biggest sporting event, Mr Harcourt warns there will be inevitable tourist price hikes.
“Australian tourists will generally find everyday life pretty cheap, although there may be a bit of naughty price gouging,” he said.
“They have developing world living standards but OECD prices.”
Mr Harcourt still expects the good times to roll for Aussies planning on spending their hard-earned on an Olympic holiday.
“I think the exchange rate will hold up for a while now. If anything it’ll probably strengthen,” he said.
The real has collapsed as Latin America’s biggest country gets hammered by a paralysing political crisis and the worst recession in decades.
When Brazil won the rights to host the games and the 2014 FIFA World Cup, it was considered an economic superpower courtesy of its resources, agricultural and manufacturing sectors and was the fifth-largest economy in the world.
But like Australia, Brazil’s economy has been punished by the end of a mining boom as China comes off the boil.
“They’re the same as us, except they’ve also had these internal structural difficulties and haven’t been able to adjust to the drop off in commodity prices,” Mr Harcourt said.
“They’re sinking but we’ve got our head above water.”
Brazil’s economy shrank nearly four per cent last year amid rising inflation and high interest rates.
The outlook for 2016 is nearly as bad and could set the stage for the country’s deepest recession on record.
A corruption scandal has engulfed state-run oil company Petrobras and president Dilma Rousseff faces impeachment over allegedly fiddling the country’s budget accounts to favour her re-election.
And on top of everything, Zika virus is sweeping the Americas and threatens to derail the Brazil’s tourism revenue.
“With the Rio Olympics, Brazilian tourism was expected to be worth 10 per cent of GDP, up from the regular nine per cent in a normal year, given the popularity of Carnival,” Mr Harcourt said.
“But with Zika, if it affects Brazil in SARs-like proportions, it will shave 20 per cent off tourism income.”
That’s equivalent to US$47 billion, according to UK-based economist Geraint Johnes.
One million people are expected to descend on Rio for the first Olympics on South American soil in August.