Brazil’s Economic Growth to Slow in Late 2025 Amid High Rates and Trade Concerns
Brazil’s economy is projected to grow by 2.0% in 2025, down from 3.4% in 2024, with a slowdown expected in the latter half due to high interest rates and global trade uncertainties. Strong agricultural performance is anticipated, while industrial production suffers from monetary tightening. Inflation is forecast at 5.4% this year and 4.5% in 2026.
Brazil is anticipated to experience a deceleration in economic growth during the latter half of 2025, primarily due to elevated interest rates and uncertainties stemming from global trade dynamics. This forecast is drawn from a recent Reuters poll, which indicates the economy will grow 2.0% in 2025, down from a 3.4% expansion in the previous year. Despite the slowdown, a robust first half, supported by the agricultural sector, is expected.
Economists predict that public spending may increase in response to the economic slowdown. Without supplementary fiscal measures, Brazil’s Gross Domestic Product (GDP) is projected to expand based on strong performance in 2024. Initially, the economy is expected to grow by approximately 2.5% in the first half of 2025, but this is likely to taper to about 1.5% in the latter half of the year.
The agricultural sector is expected to significantly impact the economy, particularly following a recovery from last year’s drought. Rafael Prado of consultancy GO noted that a record harvest will enhance agricultural outputs, including beef and soybeans. However, industrial production remains subdued due to high interest rates aimed at controlling ongoing inflation.
Inflation is predicted to average 5.4% this year and drop to 4.5% in 2026. Factors contributing to inflation include a complicated fiscal landscape and rising national debt, although President Luiz Inacio Lula da Silva’s government may bolster welfare initiatives in view of the upcoming election. Rai Chicoli from Citrino Gestão de Recursos emphasizes that while a slowdown is expected in 2026, government stimulus could introduce upward risks to economic activity.
The Selic benchmark interest rate is projected to increase to 15.00% this quarter and remain constant through 2025. There are concerns about global economic conditions, particularly the influence of U.S. trade policies and tariffs on Brazil’s business environment. Among economists surveyed, most believe the U.S. trade conflict negatively impacts Brazilian business sentiment.
Brazil’s approach to the U.S. tariff includes a desire for negotiation rather than retaliation, alongside efforts to strengthen relations with the European Union and China. Analysts have indicated that prolonged trade tensions between the U.S. and China will sustain low commodity prices, which could restrict inflation trends. However, a depreciating Brazilian real could counteract that effect by increasing prices for tradable goods.
In summary, Brazil’s economic growth is projected to slow down due to high interest rates and trade uncertainties, despite a strong performance expected in early 2025. The agriculture sector is seen as a primary growth driver, but industrial production suffers from the effects of monetary policy aimed at curbing inflation. The outlook for inflation and interest rates remains complex, influenced by both domestic fiscal policies and global trade dynamics.
Original Source: www.marketscreener.com
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