Brazil: The tragedy in Rio Grande do Sul and its economic impact

 

It is time to accept that while the fight against climate change remains a priority, the truth is that it is a losing battle because no action has been taken since 1990. The situation is worsening as billions of people, especially in the Asia-Pacific region, begin to climb out of poverty. These people are adopting middle-class lifestyles, so they are consuming, and this consumption is not free of emissions and environmental impacts of various kinds, no matter how much clean energy they use (even clean energy has not only a carbon footprint, but a significant environmental footprint). Nevertheless, the effort must continue, but let us have no illusions. The disaster is here, and the only thing left to do is to invest in infrastructure to avoid human and material losses, as well as to ensure the proper flow in the agri-food and energy supply chains, or in other words, food and energy security, not to mention limiting water stress.

The tragedy in Rio Grande do Sul, Brazil, is one of many important examples of how unforeseen events caused by weather anomalies can change the expected trend of economic indicators and affect the forecasts of private sector analysts.

The Central Bank of Brazil estimates a negative impact of the Rio Grande do Sul tragedy on financial market expectations, as reported in the Focus Bulletin. According to the bank's projections, this disaster will affect the agricultural harvest, trade, sales, employment, and all economic activity in Rio Grande do Sul and, consequently, in Brazil as a whole.

Rio Grande do Sul has a strong agricultural sector, with a focus on pork and poultry production in addition to rice. With the roads blocked, these products will not be able to flow. With the tragedy, manager G5 Partners predicts that inflation in May will be between 0.02 and 0.05 percentage points higher than previously forecast. GDP should also be affected. On the other hand, the central bank expects an increase in defaults as the economy suffers a shock and commercial transactions become more scarce.

Investors in Brazil, as well as around the world, estimate that extreme weather events, such as droughts, floods, and inundations, cause physical damage to agents' properties and devaluation of their assets, as well as interruptions in production processes and supply chains. This leads to a reduction in production, with a loss or reduction in income and additional costs for producers. The drop in production raises prices, puts pressure on inflation, and amplifies the reduction in society's income. Declining incomes and rising inflation increase defaults, causing losses to financial institutions, negatively affecting the financial market, and damaging the stability of the national financial system.

Yesterday it was the Middle East or West Africa, today it is Brazil. Tomorrow, we do not know with each climatic anomaly. Adaptation in prevention is what remains, but we will not be spared from the effects if we do not invest in infrastructure to avoid the consequences of climate change.