Rio Grande do Sul economy shrank 9 percent in May

The Brazilian Central Bank’s regional economic activity index (IBCR) shows that the economy of Rio Grande do Sul, the country’s southernmost state, shrank by 9 percent in May — when the state was hit by generational floods that disrupted infrastructure, agricultural production, and industrial activities. The index is a monthly gauge created in 2002 to […]

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The Brazilian Central Bank’s regional economic activity index (IBCR) shows that the economy of Rio Grande do Sul, the country’s southernmost state, shrank by 9 percent in May — when the state was hit by generational floods that disrupted infrastructure, agricultural production, and industrial activities.

The index is a monthly gauge created in 2002 to assess the performance of different sectors of the economy. The 9 percent dip was the most severe for Rio Grande do Sul since the index was created.

Published after a two-month hiatus, the IBCR was the first measurement of the extent of the economic losses caused by the recent floods — though not the only one. Data from the Federal Revenue Service shows that tax collection in the state dropped by BRL 4.4 billion (USD 787 million) in May compared to a year prior.

Other pieces of data, however, have suggested that the economy in Rio Grande do Sul has begun to pick up faster than expected. 

Retail data, for example, was up by 1.2 percent year-on-year by the end of June — thanks to heated sales by construction and home appliance stores. The lodging industry, meanwhile, continues to droop, down by 17.8 percent at the end of last month (after a 52 percent dip in May).

Financial institutions and consulting firms sought to model the potential impact of the floods on economic activity. Drawing from studies that analyzed similar climatic events, such as hurricanes and earthquakes, as well as the initial shutdown months of the Covid pandemic, various estimates indicated a negative impact of between 0.2 and 0.3 percentage points on this year’s GDP.

But analysts seem to believe that the worst is past. GDP growth projections for the year have risen for the past three weeks — from 2.09 percent three weeks ago to 2.15 percent now.

More recently, on the other hand, the International Monetary Fund cut down its growth perspective for the year by 0.1 points to 2.1 percent — mainly because of the floods.

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