Fastest growing states in the country have a boost from agro and Bolsa Família

The level of Brazilian economic activity advanced 2.65% in the first semester, according to the Economic Activity Index of the Central Bank (IBC-Br), which is seen as a preview of the GDP. And two factors contributed to the progress of the economy of the states: the super harvest of grains and the expansion of income transfers.

In the Midwest and South, especially in Paraná, the excellent grain harvest, despite lower prices, was reflected in the favorable performance of other sectors. In the North and Northeast, income transfer programs contributed to commerce and services.

The strong expansion of the agricultural GDP, which grew 21.6% in the first quarter of 2023, compared to the last of 2022, was motivated by the record harvest of 320.8 million tons, 17.8% greater than last year, according to data from the National Supply Company (Conab).

Agriculture was one of the sectors that most favored the 1.9% growth in the Brazilian GDP in the first quarter. It was the best start to the year since 2010. The data for the second quarter will be presented this Friday (1st) by the Brazilian Institute of Geography and Statistics (IBGE).

Some of the largest Brazilian producers had growth rates above 20% in the harvest, such as Paraná (+34.9%) and Mato Grosso do Sul (+23.3%). The high rates are related to the weaker basis of comparison: these two states had been greatly affected by the drought last year.

Another factor that contributed to the good performance of the state economies, mainly in the North and Northeast, was the expansion of programs such as Bolsa Família and Benefício de Prestação Continuada (BPC). The estimate by consultancy Tendências is that disbursements for the two programs, which correspond to 4.2% of the total income mass of Brazilian households, will grow by 28.1% this year.

Winds keep blowing in favor of Mato Grosso

One of the states that appears in three of four rankings based on data from the IBGE and the Ministry of Agriculture (see the end of this report) is Mato Grosso. The state, by the way, is the one that grew the most in the country in this century, according to a report by People’s Gazette.

Taking advantage of an exceptional harvest – which grew 16.5% compared to the previous year and surpassed 100 million tons, almost a third of national production – and new investments, Mato Grosso appears among the three states with the greatest expansion in the last 12 months in three major sectors: retail, services and industry.

One of the highlights is industrial production, which increased 7.8% in one year. Although this pace is decreasing, Mato Grosso is part of the select group of five states where the industry is still growing.

The expansion has been leveraged by the food industry, which advanced 12.1% in 12 months, and by the manufacture of biofuels. New investments ensured a 27% growth in this segment.

The good performance of the field was also reflected in expanded retail trade (which includes vehicles and construction materials) and services, which grew 6.7% and 15.5% respectively.

Bolsa Familia helps states in the North and Northeast

States in the North and Northeast appear well positioned in the growth rankings for expanded retail sales volume and services. One of the factors contributing to this is the expansion of income transfer programs, such as Bolsa Família.

In July, according to the Ministry of Development and Social Assistance, 9.59 million families received the benefit in the Northeast and another 2.55 million in the North. The average value of the benefit was R$ 684.17 per family.

This scenario contributed for Paraíba to assume the top ranking of growth in the volume of sales in the expanded retail trade (12.3%) and the third in the provision of services (13%). The state, with an estimated population of 3.97 million inhabitants, has 686,400 families benefiting from the income transfer program.

Tocantins also stands out in the rankings for growth in commerce (up 8.2%) and services (14.2%). The state, one of those that forms the agricultural region known as Matopiba, has also been registering a strong expansion of agriculture.

Conab data show growth of 19% in the grain harvest in Tocantins. And the gross value of agricultural production increased by 0.7% in 12 months, according to data from the Ministry of Agriculture. The result was not better only because the price of commodities is down.

5G boosts production in the Amazon industry

The expansion of 5G technology across the country is helping companies in the Manaus Free Zone. The production of the Amazonian industry was the one that grew the most in the country: 8.3% in 12 months until June. In the first half of this year, there was a large increase in the production of computer and electronic equipment.

Analysts from Banco do Brasil point out that, on the other hand, the problems that the civil construction sector is experiencing in China could harm the industry in Pará, which is heavily concentrated in mineral extraction. The state is the largest exporter of iron ore in the country.

Expectations for the sectors

XP Investimentos assesses that the service sector will continue to grow in the short term, albeit moderately. Two factors weigh in on this, says economist Rodolfo Margato: the dissipation of post-Covid impulses and the accommodation of labor market conditions.

For retail, the expectation is for modest growth. The XP economist points out that domestic demand is on a downward trajectory, motivated by the tight credit market and the more accommodating situation of employment and income. “The retail activities that continue to rise reflect the decline in inflation, the greater income available to families and government stimulus measures”, he says.

According to the MUFG Brasil bank, the industry will continue to suffer ups and downs, motivated by the divergent performance between its segments. Most of them have been operating with excessive inventories due to relatively weak demand, which limits the expansion of industrial production.

The industry is also penalized by the high level of indebtedness of companies and households. The external scenario will remain challenging with the global economic slowdown, which harms exports.

A regional report by Banco do Brasil shows that states such as Rio Grande do Sul, Santa Catarina and São Paulo had their industry affected by the monetary tightening, as they concentrate the production of durable goods.

The fastest growing states in four major sectors

Variation of indicators in 12 months. Sources: IBGE and Ministry of Agriculture

RETAIL – Sales volume in the expanded retail trade

SERVICES – Volume of service provision

INDUSTRY – industrial physical production

AGRICULTURE – Gross production value