However, states reliant on industry and services may see moderate advance

08/11/2022

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Camila Saito — Foto: Divulgação

States in Brazil’s Central-West region are expected to see the highest economic growth this year driven by agriculture. After a drought last year, agricultural production accelerated with record soybean and corn crops. On the other hand, states reliant on industry and services like São Paulo may face moderate growth, in line with the national average, while those in the South region may witness contraction, projections by Tendências Consultoria show.

According to the study carried out by the consultancy, the GDP of Mato Grosso will probably grow the most among Brazilian states, with an expansion of 5.6% this year, well above last year’s 3.1%. Mato Grosso do Sul comes next, with 4.6% growth, also above the 2021 growth of 3.6%.

“In Mato Grosso, the projection is explained by record soybean and corn crops and better performance for meat slaughtering, resulting from external demand for animal protein. Besides this, the Mato Grosso industry has been showing expressive performances because of the food and biodiesel sectors,” said Camila Saito, an economist with Tendências and a co-author of the study. “In Mato Grosso do Sul, we will also see a good evolution in agriculture. Even though the soybean harvest has suffered with the drought and may drop, the strong performances [of production] of corn and meat are likely to more than offset that.”

She added that both states are expected to benefit from the favorable scenario for food, pulp and biodiesel production.

Mato Grosso and Mato Grosso do Sul have low industrial density and high agribusiness density, which explains those projections, said Fabio Silveira, a partner at MacroSector Consultores. He argues that besides the primary sector activity, farming and cattle raising make industry and services move forward in those states. “It is agribusiness in the broadest sense that drives these states,” he said.

The weight of agribusiness in the industrial and logistics chains of these states exceeds 50%, said Sergio Vale, chief economist of MB Associados. “The growth of agribusiness therefore ends up helping the economy as a whole,” he said.

Mr. Vale argues that the favorable situation of strong price increases and a very favorable exchange rate for exports will lead these states to grow above the country’s average.

The positive effect of agribusiness for growth also benefits nearby states, such as Piauí and Maranhão. “We can’t say that this is a new [agricultural] frontier, because this has been happening for 20 years, but these states where North and Northeast meet have strong grain production that helps GDP growth,” he said.

Piauí is expected to boast the third-largest growth among Brazilian states, with an expansion of 3.7% this year, compared to 4.6% the previous year. Maranhão is likely to expand 3.1%, compared with 4% last year. Tocantins is seen as growing 2.7%.

According to Ms. Saito, Maranhão and Piauí have benefited from international prices since 2020, which stimulated the expansion of the planted area. A crop failure in the South region has also contributed indirectly as it stimulated production in the North and Northeast regions.

“Added to this is the increase in the total income bill after government cash transfers. The implementation of the Auxílio Brasil and the increase in the value of the handout may benefit more the states in those regions,” Mr. Vale said.

The Tendências survey also shows that parts of the South region may see a contraction because of the grain crop due to drought, and the low industrial production of pro-cyclical sectors, such as machinery and equipment, and metallurgy, said Lucas Assis, co-author of the study.

Santa Catarina is expected to contract 0.1%, after advancing 6.6% in 2021. Rio Grande do Sul’s GDP, in turn, is likely to fall 1% this year after expanding 8.6% in the previous one. Last year, the state was one of the positive highlights due to agriculture’s strong recovery after a crop failure in 2020 and good evolution in industry, Mr. Assis said.

Mr. Vale says that, depending on the La Niña weather phenomenon, the following harvests may be affected, while the GDP growth of southern states may disappoint again.

São Paulo is seen as growing 1.6% this year after a 4.4% expansion in 2021. Rio de Janeiro will probably grow more this year, with an acceleration of 2.1%.

“São Paulo’s growth may be slightly below the national average [1.7%], due to a weaker industrial performance, especially in sectors such as automotive and capital goods, which feel the effects of production cost pressures and shortage of inputs, resulting from the imbalance of global chains,” Ms. Saito said.

The higher growth forecasted for Rio is due to the oil sector, with highlight to the Carioca and Guanabara rigs (each one with capacity to process 180,000 barrels per day), and the expectation of the inauguration of the new Peregrino II unit (with capacity for 60,000 barrels per day).

Rising oil prices in the international market indicate a promising near future, says Ms. Saito, since such a scenario tends to stimulate investments in mature fields and the resumption of fields that were inactive.

As for 2023, the scenario is positive for producers of soy, corn, cotton, meat, biofuel, and pulp, which benefits states like Mato Grosso and Mato Grosso do Sul, she said. Pará is seen as recovering iron ore production with the expansion of Vale’s S11D complex, while Rio Grande do Sul is likely to take advantage of the soybean harvest.

States in the Southeast region, however, are expected to face more problems. “Exchange rate and price will still be favorable for agriculture-producing states, to the detriment of others that will suffer with growing interest rates,” Mr. Vale said.

*By Marsílea Gombata — São Paulo

Source: Valor International

https://valorinternational.globo.com/