Brazil Economic Outlook. December 2024

Growth will be around 3% for the third consecutive year in 2024, but a slowdown ahead is likely, driven by a less supportive global environment and higher-than-anticipated SELIC rates. The balance of risks has recently worsened, reflecting global factors and rising concerns over fiscal imbalances.

Key points

• Key points:
• Global factors such as higher US interest rates, a stronger USD, and tariff threats, combined with concerns over fiscal accounts, have heightened tensions in Brazilian financial markets, weakening the Brazilian real and driving up local interest rates. In spite of financial volatility, growth remains robust, bolstered by domestic demand.
• Growth will be around 3% for the third consecutive year in 2024. Resilient labor markets and a recovery in credit markets, alongside fiscal policy, continue to support domestic demand. However, growth is likely to decelerate. Exports will face headwinds from slower global growth and rising protectionism, while internal demand is expected to weaken due to tighter-than-anticipated monetary conditions.
• The monetary tightening cycle is expected to continue, with the SELIC rate forecast to converge to around 12.75% by 1Q25. Higher interest rates are likely to help reduce inflation and support the Brazilian real. However, inflation is forecast to remain above the 3% target, and the exchange rate is expected to stay relatively weak.
• The balance of risks for the Brazilian economy has worsened recently. In addition to global factors, fiscal imbalances have become an increasing source of concern, despite the recent measures proposed by the government. If left unaddressed, they could lead to a more negative macroeconomic scenario.

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