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Inflation rises above expectations in May driven by services, floods

With greater pressure from food in the South, benchmark index rises 0.46% in comparison to April

12/06/2024

Marcela Rocha — Foto: Ana Paula Paiva/Valor

Marcela Rocha — Foto: Ana Paula Paiva/Valor

The Extended Consumer Price Index (IPCA), Brazil’s official inflation index, interrupted a sequence of more favorable readings and rose again above expectations in May. The indicator brings the first impacts of the floods in Rio Grande do Sul on prices, as well as reinforcing economists’ discomfort with metrics linked to the heated economy.

The IPCA rose from 0.38% in April to 0.46% in May, statistics agency IBGE reported on Tuesday. The result was above the median of 0.41% collected by Valor Data and at the ceiling of forecasts.

In 12 months, the IPCA gained momentum again, from 3.69% to 3.93%, after seven decelerating readings. The rise was already expected, but it was also stronger than the median forecast of 3.87%.

“I didn’t like what I saw and ended up changing the [IPCA] figure for the year,” said Fábio Romão, an economist at LCA Consultores, who adjusted his projection to 3.9% from 3.7% in 2024.

J.P. Morgan also revised its IPCA projections after the last reading, to 4% from 3.7% this year and to 3.7% from 3.5% in 2025. The new figures seem more consistent with “the combination of a tight labor market, rising inflation expectations, a more depreciated exchange rate, and higher food prices,” wrote economist Vinicius Moreira and the bank’s chief economist for Brazil, Cassiana Fernandez, in a report.

Five of the nine classes of expenditure registered a slowdown in inflation between April and May: food and beverages (to 0.62% from 0.70%); household goods (to -0.53% from -0.26%); clothing (to 0.50% from 0.55%); health and personal care (to 0.69% from 1.16%); and communication (to 0.14% from 0.48%). On the other hand, there was an acceleration in housing (to 0.67% from -0.01%); transportation (to 0.44% from 0.14%); personal expenses (to 0.22% from 0.10%); and education (to 0.09% from 0.05%).

With the floods in Rio Grande do Sul, inflation in the Porto Alegre metropolitan region rose to 0.87% in May from 0.64% in April. This was the highest rate among the 10 metropolitan regions and six cities monitored by the IBGE. Remote price collection (by telephone or internet) in the region rose to around 65% from the historical standard of 20% in May, according to André Almeida, the IBGE manager responsible for the IPCA.

The IPCA would have risen less, by 0.42%, if the index had been reweighted without taking the state into account, said XP economist Alexandre Maluf. Mr. Almeida explains that the institute does not estimate the IPCA without the influence of one region or another, unlike the sub-items, for which it calculates the individual influence.

The main contribution (0.57 percentage point) to inflation in Rio Grande do Sul came from food prices at home, especially fresh food, dairy products, poultry, and wheat-related products, according to Mr. Maluf. In the general IPCA, rice rose 1.47% in May, “even faster than indicated by the collections,” said Terra Investimentos in a report. In April, there was a deflation of 1.93%.

The effect of the floods in Rio Grande do Sul has started to show up in inflation measured by the IPCA, especially in foodstuffs, but as the heavy rains affected production chains in general, consequences for industrial goods or services could still arise, said Mr. Almeida.

Although it slowed down compared to April, the food and beverages group exerted the greatest upward influence on the IPCA in May, by 0.13 percentage point, or 28.2% of the increase in the index. “Despite the slowdown, the rate recorded is seasonally high,” said Mr. Romão.

XP’s Mr. Maluf says that, in general terms, the acceleration of the IPCA in May, compared to April, was due to more volatile items, such as airfare (5.91% from -12.09%), some industrial goods (0.29% from 0.21%) and monitored items (defined by contract or public agency), such as energy (0.94% from -0.46%). Also contributing were some services linked to the economic cycle, such as personal services (0.31% from 0.19%) and food away from home (0.50% from 0.39%).

On the other hand, the 0.45% rise in gasoline was lower than expected by economists. Fuels (0.45% from 1.74%) and food at home (0.66% from 0.81%), especially fresh foods (0.99% from 3.66%), moderated the rise in May, compared to April. The problem is that economists were expecting a much smaller increase for food at home—0.37% for Terra and 0.44% for XP, for example. The result was “much higher” and “with generalized upward surprises,” said Mr. Maluf.

Marcela Rocha, chief economist at Principal Claritas, highlights the 0.29% rise in industrial goods, above her expectation of 0.27%. “It’s not such a significant surprise, but in the annualized and seasonally adjusted quarterly moving average, it went from a fall of 0.1% to a rise of 0.4%, which is still super low, but it’s another indicator that the process is no longer so much about favorable news,” she said. The seasonally adjusted annualized three-month moving average is a way of smoothing out monthly movements, but still capturing the trend “at the end.” “Unlike the last two months, these underlying measures performed worse,” said Ms. Rocha.

The greater-than-expected advance in industrial goods, driven by personal hygiene products and new cars, according to Mr. Maluf, contributed to the average of the cores (measures to smooth out volatile items) monitored by the Central Bank rising 0.39% in May, from 0.26% in April, matching MCM Consultores’s expectation and above XP’s forecast (0.34%), for example. All five core inflation rates accelerated compared to April, say Victor Beyruti and Yuri Alves, economists with Guide.

Over 12 months, the average core inflation rate accelerated to 3.55% from 3.53%, according to MCM. “It showed higher inflation again for the first time since June 2022,” Mr. Beyruti and Mr. Alves wrote.

In the three-month moving average, the cores went to 3.2% in May from 3.1% in April, “deviating from the downward trend seen in previous months,” said Mr. Maluf.

Services inflation accelerated to 0.40% in May from 0.05% in April, largely due to the rise in airfares, the first in the year. More relevant to economic analysis, underlying services rose from 0.33% in April to 0.41% in May, matching MCM’s forecast and above the expectations of Principal Claritas (0.32%) and XP (0.36%). The quarterly moving average rose to 5.1% from 4.9%.

“It’s still a level below that of the beginning of the year, when the services figures came in well above expectations and reached 5.6% in March, by this metric. But it shows a qualitative part of inflation that is not as favorable as had been observed and reinforces the Central Bank’s scenario of caution and concern,” said Ms. Rocha.

Labor-intensive services, another measure closely monitored by the Central Bank, slowed to 0.38% in May from 0.53% in April, “undoubtedly the only (albeit important) relief in the opening,” said the Terra team. The news, they say, would be more impressive if it happened in a context of a slowdown in the job market, which is not the case.

“In the midst of a below-equilibrium unemployment rate, accelerating wages, and a stagnating participation rate, we will need more to convince us that there is a new trend underway,” write João Maurício Rosal, Terra’s chief economist, and economists Homero Guizzo and Luís Gustavo Bettoni. On the quarterly moving average, labor-intensive services are at 6%.

The diffusion index, which measures the proportion of items rising in the basket, rose from 57% in April, to 57.3% in May, according to Valor Data. The dispersion “came in flat,” says Mr. Romão of LCA, noting that it not only exceeded that of April but was also higher than that of May last year. The same goes for underlying services. “It’s a nuisance, a red flag,” he said.

For June, inflation forecasts are around 0.3%. But economists expect food prices to rise even more, mainly because of the floods in the South region.

*Por Anaïs Fernandes, Lucianne Carneiro — São Paulo, Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Floods: Reconstruction must consider climate challenges, says Johannpeter

Tragedy highlights need for climate-conscious rebuilding efforts, according to company’s shareholder

06/03/2024

André Bier Gerdau Johannpeter — Foto: Silvia Zamboni/Valor

André Bier Gerdau Johannpeter — Foto: Silvia Zamboni/Valor

Businessman André Bier Gerdau Johannpeter, continuously monitoring the recovery efforts in Rio Grande do Sul—recently devastated by the most significant flood in its history—is deeply involved in the post-disaster scenario in the birthplace of the steel group founded by his great-great-grandfather. From his apartment in Porto Alegre, the former CEO of Gerdau and now vice-chairman of the board watches as dark clouds gather, signaling yet another heavy rainfall. “We are still in the midst of the catastrophe,” he told Valor last week.

While immediate emergency responses and substantial investments are crucial to restore the basic infrastructure, Mr. Johannpeter is also casting an eye towards the future, considering the broader implications of the devastation. He sees an opportunity for Rio Grande do Sul to become a beacon of sustainable reconstruction and a case study in minimizing climate impacts.

“We need to rethink Rio Grande do Sul. Perhaps the state can serve as a case study for how to rebuild in a way that acknowledges and addresses the realities of climate change,” he suggested. With 50% to 60% of its GDP impacted by the disaster, the state’s immediate needs are dire, but Mr. Johannpeter emphasizes that planning for sustainable rebuilding should begin now, recognizing that it will be a prolonged endeavor.

The businessman is championing an efficient and sustainable approach to reconstruction in response to the increasing frequency of extreme weather events. “If we simply rebuild in the same locations and in the same manner, we are setting ourselves up for future catastrophes,” he warns.

Mr. Johannpeter points to successful international models that could inspire Rio Grande do Sul’s rebuilding efforts. For instance, the Netherlands’ “Room for the River” program was initiated after the 1995 floods of the Rhine and Meuse rivers, which displaced over 200,000 people. “This program does not merely attempt to contain water; instead, it involves sophisticated engineering of dykes, elevation of riverbanks, and channel modifications to allow the river more room to flow safely,” he recalls.

Another example is New Orleans in the United States; following the devastation of Hurricane Katrina in 2005, over $14 billion was invested in enhancing its hurricane and flood defenses. The city’s measures included constructing new dyke systems, installing water pumps, and developing an extensive contingency plan to better manage future disasters.

Despite significant efforts and investments, the aftermath of Hurricane Katrina saw New Orleans’ population decline by 20% as 100,000 residents were forced to leave, having no viable options for resettlement. Mr. Johannpeter expresses a concern that Rio Grande do Sul might face a similar fate. “Without a compelling program that offers residents hope and support to rebuild, we risk a mass exodus,” he cautions.

Mr. Johannpeter also highlights innovative solutions like “sponge cities,” a concept applied in China, the United States, Denmark, and Germany. This approach involves adapting urban environments to absorb, cleanse, and repurpose rainwater. While acknowledging the high costs associated with such technologies, he emphasizes their long-term benefits: “We must envision a grand project that’s sustainable over time, rethinking our approach to reconstruction to ensure it is robust and effective.”

Furthermore, Mr. Johannpeter sees an opportunity to raise global awareness about climate change through Rio Grande do Sul’s reconstruction. He points out that while developed nations are progressing toward decarbonization, similar impactful measures can be implemented elsewhere. He envisions two major goals for the state in the wake of its recent devastation: to become a model for effective and sustainable rebuilding and to enhance global engagement with environmental stewardship, thereby contributing to broader efforts to mitigate climate change.

Internally, various proposals and actions are gaining momentum. Mr. Johannpeter, a prominent member of the Rio Grande do Sul State Federation of Industries (FIERGS), highlights the ongoing campaign to boost local product consumption. Dubbed “Buy RS,” this initiative is designed as an emergency measure to bolster the state’s economy in the wake of recent hardships.

FIERGS has presented over 40 distinct requests for federal support to aid in the state’s recovery, which are already yielding tangible results. According to Agência Brasil, a month following the intervention by the federal government’s task force, an emergency allocation of R$62.5 billion has been directed towards Rio Grande do Sul to assist the flood-impacted populace. Additionally, the government has expedited the distribution of benefits and extended the deadline for tax payments.

Mr. Johannpeter, alongside other leading southern businesspersons and executives such as Daniel Randon, Bruno Zaffari, José Galló, and Gabriela Schwan, is actively involved with Transforma RS, an initiative aimed at mobilizing local and international companies. The organization, which already collaborates with public authorities to enhance management practices, now faces the critical challenge of efficiently managing significant financial inflows and coordinating diverse recovery efforts in the aftermath of the disaster.

“We closely examined what was done during the pandemic to reinvigorate companies. However, there is a heightened challenge now: the economy must be stimulated to generate revenue. It is crucial to infuse new capital into businesses, as this catalyzes both the regional and state economies,” he said.

Gerdau, significantly impacted, saw two of its major plants in Charqueadas and Sapucaia halted by the floods. Though the rains did not directly damage the facilities themselves, operations were suspended to ensure the safety of the workforce, many of whom suffered considerable personal losses due to the flooding.

“There was no damage to the property itself, but we halted operations as a precautionary measure,” explained Paulo Boneff, head of organizational development and social responsibility at Gerdau and general manager of Instituto Gerdau. He noted that approximately 180 families of employees either lost their homes or require extensive repairs before they can return. Gerdau is actively working to support these families in making their homes livable again.

In addition to monitoring the well-being of at least 350 families significantly affected by the tragedy, Gerdau faces the challenge of addressing its employees’ mental health. Mr. Boneff highlighted a dedicated company program that maintains daily contact with affected employees, ensuring that no one is required to return to work until they are ready, including from a psychological standpoint.

Furthermore, Gerdau is actively involved in several other initiatives. In collaboration with Gerando Falcões, a non-profit organization focused on social impact, Gerdau has established a fund to aid housing efforts, kick-started with an initial company donation of R$5 million. This fund, open to contributions from other corporations, aims to finance the construction of temporary or permanent residences for families who have lost their homes. Additionally, the steelmaker is contributing to the rebuilding of small bridges in the hilly areas of Rio Grande do Sul, which is critical for the region’s logistics and accessibility.

The controlling family of Gerdau has actively participated in various efforts to aid the reconstruction of the state. In collaboration with Din4mo Lab, a consultancy specializing in social impact businesses, they established the Regenera RS emergency philanthropic fund. Initiated with a substantial contribution of R$30 million from Instituto Helda Gerdau and the steel company itself, the fund aims to amass a total of R$100 million. Managed by Din4mo, the funds will support projects across education, housing, urban solutions, and business development.

“It is a collective endeavor involving both the public and private sectors and drawing support from within and beyond Brazil. Every bit of help counts. The emotional impact is profound, and while the full scope of the challenge is still unfolding, it is clear that it will be substantial,” expressed Mr. Johannpeter.

*Por Stella Fontes, Helena Benfica — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Floods put Brazil’s 2% GDP growth at risk

Economists estimate an impact of 0.2 to 0.3 percentage points driven by agribusiness

05/13/2024

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The impact of the floods in Rio Grande do Sul, the state with the fourth-largest share of Brazil’s Gross Domestic Product, on the national economy may range between 0.2 and 0.3 percentage points, according to preliminary estimates. That could put in check the possibility of a GDP growth above 2% for 2024, despite the resilient general activity.

XP Asset has revised its projection for Brazil’s GDP this year to 2.1% from 2.4%. While the previous expectation was for growth of 0.7% in the second quarter compared to the first, the financial firm now expects a drop of 0.2%. “And I think the impact could be even worse than our estimates suggest,” said chief economist Fernando Genta.

That is because the estimate considers rather the direct effect of the floods on the economy of Rio Grande do Sul than an overspill into other areas, Mr. Genta explains. For example: as the annual minimum wage raise is already given, the increase in food prices due to problems with crops in Rio Grande do Sul could lead to a deterioration of households’ purchasing power and, therefore, affect consumption in the GDP.

Fernando Fenolio, chief economist at Wealth High Governance, estimates that the adverse impact could vary from 0.02 percentage points on the national GDP, if there is a full recovery of industrial capacity in Rio Grande do Sul and a 25% loss of the remaining local harvest, to 0.34 percentage points, if the loss of the remaining harvest is complete and industry recovery does not exceed 25%.

An impact of 0.22 percentage points, caused by a total loss of the remaining harvest, although with 75% recovery of industrial capacity, seems a more likely scenario at the moment, according to Mr. Fenolio. “We will review our GDP projection. It could go to 1.8%, compared to the 2% we were expecting for this year, mathematically,” he said. Inflation, in turn, would shift to 4% from 3.8%. “It’s a classic supply shock, less GDP and more inflation.”

In preliminary estimates by 4intelligence, the Rio Grande do Sul’s GDP growth could reach just 0.5% this year, from 5.5% previously projected, due to the disaster. Considering that the state accounts for around 6.5% of the national economy, the floods could reduce Brazil’s GDP growth by 0.2 percentage points in 2024, according to the estimates. As a result, 4i’s official projection of a 1.9% increase in Brazil’s GDP this year could be reduced to 1.7%.

“The main impact on activity will occur in May. In June, we believe that most activities will be back to normal, depending on the material damage and the pace of reconstruction,” Bradesco said in a report. The bank also sees a potential impact of 0.2 to 0.3 p.p. on the Brazilian GDP as a result of the disaster.

G5 Partners has a similar estimate, indicating a loss of 0.3 percentage points. “As we have never experienced a natural disaster of the magnitude seen in Rio Grande do Sul, we sought references from other locations. We used the effects of hurricanes Katrina and Rita in the U.S. in 2005 as examples,” said Luis Otávio Leal, G5’s chief economist.

Based on a study by the U.S. Department of Commerce, which measured the impact of these hurricanes on the U.S. GDP quarterly, and adapting to metrics in Brazil, Mr. Leal estimated that the floods could take 10.5 percentage points off the variation in Rio Grande do Sul’s GDP in the second quarter of 2024, compared to the first quarter. As a result, his projection for the Brazilian GDP growth in 2024 would fall to 1.8% from 2.1%.

G5 did not change the estimate, but, before the floods, the firm was expecting to raise its annual forecast for national GDP following the release of official data for the first quarter.

“I believe the comparison with the effect of hurricanes Katrina and Rita makes sense, as there was similar material damage. However, the estimate does not consider other variables, such as the difference in the countries’ ability to act,” Mr. Leal points out, as the U.S. has an organized structure to act in cases of disasters like this.

According to Banco Pine, the projection for Brazil’s GDP growth in 2024, of 2.3%, can be revised to 2.1%, in an initial estimate.

“The impact tends to be mitigated for the national GDP. Regionally, it’s much more, and thinking in trillions of reais, there’s a loss of wealth. But I’m even more concerned about agribusiness,” said the chief economist of the bank, Cristiano Oliveira. He notes that if the state accounts for 6.5% of the national GDP, its participation in the agricultural GDP is almost double, around 12.5%.

Considering the state alone, 4i estimates that the most affected sector will be agriculture, which could grow 25% less than expected in the second quarter. “Rio Grande do Sul’s agricultural GDP, alone, was expected to grow 18.9% in 2024, recovering from a giant crop failure in 2022 that was not entirely replaced in 2023. Now, the increase could be just 1.9%,” said Bruno Lavieri, 4i’s chief economist.

Assuming that half of the unharvested crop on the fields has been lost, 7.5% of rice production and 2.2% of soybeans in Brazil could be impaired, according to Bradesco. The bank argues that these estimates may still be conservative.

With that in mind and considering a possible impact on wheat planting, which has just begun, and on the slaughter of chicken and, mainly, pigs, Bradesco estimates that the drop in Brazilian agro GDP in 2024 could aggravate to 3.5% from the expected 3%.

“There is also all the infrastructure involved in agribusiness, with storage silos, roads, and energy transmission. All of that should be impaired for some time,” said Mr. Oliveira of Pine. Therefore, he says the effect of the disaster on GDP tends to “last longer and worry more” than on inflation.

In services, transportation is likely to struggle for longer due to road closures. In services provided to households, activities related to leisure, hospitality, and personal services could also be strongly impacted, Bradesco points out. 4i’s projection for services in Rio Grande do Sul was reduced to a drop of 3.1% in the year from an increase of 1.9%, with losses concentrated in the second quarter.

The industry could be less impacted: the estimate for 2024 was reduced to 1%, from 1.8%. “Extractive activities have almost no weight in the state, while manufacturing, which is important given vehicle and machine production, should experience a specific impact and recover in the future, as demand was only pent-up. Furthermore, we should see some boost in construction, as the damage should boost construction works,” said Mr. Lavieri.

For 2025, 4i raised its GDP forecast for Rio Grande do Sul to 6.1% from 2%. “We maintain our projection for services and industry, which should grow a little less in 2024, but would recover next year. Agriculture is expected to continue below what was initially expected,” said Mr. Lavieri.

“Agribusiness in the region will likely suffer the consequences of the current event for many months to come, maybe casting doubt on the success of the next harvest,” said Mr. Oliveira. He points out that the La Niña phenomenon is expected to return in July, making the weather dry in Rio Grande do Sul. Although this could seem positive given the damages caused by excessive rainfall, it harms crops. “Unfortunately, extreme weather events tend to hit the state hard given its location,” he said.

*Por Anaïs Fernandes, Marcelo Osakabe, Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Floods put Brazil’s 2% GDP growth at risk

Economists estimate an impact of 0.2 to 0.3 percentage points driven by agribusiness

05/10/2024

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The impact of the floods in Rio Grande do Sul, the state with the fourth-largest share of Brazil’s Gross Domestic Product, on the national economy may range between 0.2 and 0.3 percentage points, according to preliminary estimates. That could put in check the possibility of a GDP growth above 2% for 2024, despite the resilient general activity.

XP Asset has revised its projection for Brazil’s GDP this year to 2.1% from 2.4%. While the previous expectation was for growth of 0.7% in the second quarter compared to the first, the financial firm now expects a drop of 0.2%. “And I think the impact could be even worse than our estimates suggest,” said chief economist Fernando Genta.

That is because the estimate considers rather the direct effect of the floods on the economy of Rio Grande do Sul than an overspill into other areas, Mr. Genta explains. For example: as the annual minimum wage raise is already given, the increase in food prices due to problems with crops in Rio Grande do Sul could lead to a deterioration of households’ purchasing power and, therefore, affect consumption in the GDP.

Fernando Fenolio, chief economist at Wealth High Governance, estimates that the adverse impact could vary from 0.02 percentage points on the national GDP, if there is a full recovery of industrial capacity in Rio Grande do Sul and a 25% loss of the remaining local harvest, to 0.34 percentage points, if the loss of the remaining harvest is complete and industry recovery does not exceed 25%.

An impact of 0.22 percentage points, caused by a total loss of the remaining harvest, although with 75% recovery of industrial capacity, seems a more likely scenario at the moment, according to Mr. Fenolio. “We will review our GDP projection. It could go to 1.8%, compared to the 2% we were expecting for this year, mathematically,” he said. Inflation, in turn, would shift to 4% from 3.8%. “It’s a classic supply shock, less GDP and more inflation.”

In preliminary estimates by 4intelligence, the Rio Grande do Sul’s GDP growth could reach just 0.5% this year, from 5.5% previously projected, due to the disaster. Considering that the state accounts for around 6.5% of the national economy, the floods could reduce Brazil’s GDP growth by 0.2 percentage points in 2024, according to the estimates. As a result, 4i’s official projection of a 1.9% increase in Brazil’s GDP this year could be reduced to 1.7%.

“The main impact on activity will occur in May. In June, we believe that most activities will be back to normal, depending on the material damage and the pace of reconstruction,” Bradesco said in a report. The bank also sees a potential impact of 0.2 to 0.3 p.p. on the Brazilian GDP as a result of the disaster.

G5 Partners has a similar estimate, indicating a loss of 0.3 percentage points. “As we have never experienced a natural disaster of the magnitude seen in Rio Grande do Sul, we sought references from other locations. We used the effects of hurricanes Katrina and Rita in the U.S. in 2005 as examples,” said Luis Otávio Leal, G5’s chief economist.

Based on a study by the U.S. Department of Commerce, which measured the impact of these hurricanes on the U.S. GDP quarterly, and adapting to metrics in Brazil, Mr. Leal estimated that the floods could take 10.5 percentage points off the variation in Rio Grande do Sul’s GDP in the second quarter of 2024, compared to the first quarter. As a result, his projection for the Brazilian GDP growth in 2024 would fall to 1.8% from 2.1%.

G5 did not change the estimate, but, before the floods, the firm was expecting to raise its annual forecast for national GDP following the release of official data for the first quarter.

“I believe the comparison with the effect of hurricanes Katrina and Rita makes sense, as there was similar material damage. However, the estimate does not consider other variables, such as the difference in the countries’ ability to act,” Mr. Leal points out, as the U.S. has an organized structure to act in cases of disasters like this.

According to Banco Pine, the projection for Brazil’s GDP growth in 2024, of 2.3%, can be revised to 2.1%, in an initial estimate.

“The impact tends to be mitigated for the national GDP. Regionally, it’s much more, and thinking in trillions of reais, there’s a loss of wealth. But I’m even more concerned about agribusiness,” said the chief economist of the bank, Cristiano Oliveira. He notes that if the state accounts for 6.5% of the national GDP, its participation in the agricultural GDP is almost double, around 12.5%.

Considering the state alone, 4i estimates that the most affected sector will be agriculture, which could grow 25% less than expected in the second quarter. “Rio Grande do Sul’s agricultural GDP, alone, was expected to grow 18.9% in 2024, recovering from a giant crop failure in 2022 that was not entirely replaced in 2023. Now, the increase could be just 1.9%,” said Bruno Lavieri, 4i’s chief economist.

Assuming that half of the unharvested crop on the fields has been lost, 7.5% of rice production and 2.2% of soybeans in Brazil could be impaired, according to Bradesco. The bank argues that these estimates may still be conservative.

With that in mind and considering a possible impact on wheat planting, which has just begun, and on the slaughter of chicken and, mainly, pigs, Bradesco estimates that the drop in Brazilian agro GDP in 2024 could aggravate to 3.5% from the expected 3%.

“There is also all the infrastructure involved in agribusiness, with storage silos, roads, and energy transmission. All of that should be impaired for some time,” said Mr. Oliveira of Pine. Therefore, he says the effect of the disaster on GDP tends to “last longer and worry more” than on inflation.

In services, transportation is likely to struggle for longer due to road closures. In services provided to households, activities related to leisure, hospitality, and personal services could also be strongly impacted, Bradesco points out. 4i’s projection for services in Rio Grande do Sul was reduced to a drop of 3.1% in the year from an increase of 1.9%, with losses concentrated in the second quarter.

The industry could be less impacted: the estimate for 2024 was reduced to 1%, from 1.8%. “Extractive activities have almost no weight in the state, while manufacturing, which is important given vehicle and machine production, should experience a specific impact and recover in the future, as demand was only pent-up. Furthermore, we should see some boost in construction, as the damage should boost construction works,” said Mr. Lavieri.

For 2025, 4i raised its GDP forecast for Rio Grande do Sul to 6.1% from 2%. “We maintain our projection for services and industry, which should grow a little less in 2024, but would recover next year. Agriculture is expected to continue below what was initially expected,” said Mr. Lavieri.

“Agribusiness in the region will likely suffer the consequences of the current event for many months to come, maybe casting doubt on the success of the next harvest,” said Mr. Oliveira. He points out that the La Niña phenomenon is expected to return in July, making the weather dry in Rio Grande do Sul. Although this could seem positive given the damages caused by excessive rainfall, it harms crops. “Unfortunately, extreme weather events tend to hit the state hard given its location,” he said.

* Por Anaïs Fernandes, Marcelo Osakabe, Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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