Brazil Economic Outlook. March 2025

Summary

GDP growth is expected to slow to 1.6% in 2025 and 1.8% in 2026, following three years of around 3% growth. The slowdown will be driven by tighter monetary conditions, a weaker fiscal impulse, and a less favorable global context, though the primary sector and labor market resilience will provide support.

Key points

• Key points:
• Fiscal policy is expected to follow a muddle-through approach. While fiscal targets will likely be met, achieving them will require additional adjustment measures. Although this won’t be enough to prevent further public debt increase, it could help avoid new turbulence like that seen in late 2024. Still, risks remain significant, especially with next year’s general elections increasingly on the radar.
• The restrictive tone of monetary policy is set to be reinforced during the next few months. The SELIC rate is expected to be hiked to around 15% by mid-year, 450 bps higher than at the beginning the tightening cycle in Aug/24. Although activity deceleration will probably make some room for an easing cycle to begging by the the end of 2025, interest rates will remain at high levels.
• Inflation will continue rising in the short term but is likely to gradually weaken from mid-year. Significantly tighter economic policies should prevent a depreciation of the exchange rate and contribute to inflation moderation, at least if fiscal and global risks remain contained.

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