Key facts
- Brazil's economy is forecast to grow moderately after the October presidential election.
- El Niño is expected to reduce farm output, impacting GDP growth.
- Public accounts are under persistent pressure, with tax hikes likely to address budget deficits.
- GDP is projected to expand 1.9% in 2024 and 1.8% in 2027.
- Inflation is forecast to average 4.7% in 2024 and 4.1% in 2027.
- The central bank is expected to implement only one more interest rate cut this year.
Brazil's economy is anticipated to experience moderate growth following the presidential election in October, according to a Reuters poll of 40 analysts. The forecasts suggest a slight slowdown in farm output due to the El Niño weather pattern, while persistent pressure on public finances is expected to continue.
Analysts predict that efforts to reduce budget deficits in the coming year may rely on tax increases rather than spending cuts, potentially extending the government's recent strategy of growth driven by expenditure. President Luiz Inacio Lula da Silva is currently leading in opinion surveys.
Gross domestic product is forecast to expand by 1.9% this year and 1.8% in 2027, with median estimates remaining largely unchanged from April. Economists at XP Investimentos significantly reduced their forecast for primary sector GDP growth this year to 1.5% from 3.0%, largely attributing this to El Niño's impact on crop yields. This situation may encourage the government to maintain spending.
Inflation is projected to average 4.7% this year and 4.1% in 2027, an increase from the April survey. Concerns about consumer price trends suggest that Brazil's central bank will likely implement only one more quarter-point interest rate cut, bringing the rate down to 14.00% from the current 14.25% by the end of the year. The consensus for the Selic rate by the end of 2027 remains unchanged at 12.00%.
Regarding fiscal goals for next year, eight out of 18 respondents indicated that higher taxes would be the most probable government choice. This is partly due to the budget structure, where over 90% of spending is mandatory, making significant cuts difficult. Six respondents favored spending cuts, three suggested other measures, and none expected revenue from privatizing state assets. This aligns with expectations that the government might continue its strategy of increasing income while supporting the economy through expenditure growth.
Under the current fiscal framework, Brazil has been running a primary deficit, which, combined with quasi-fiscal measures and a substantial interest bill, contributes to a large general budget gap and debt. The Treasury anticipates small primary surpluses starting from 2028, but this requires additional fiscal measures that have not yet been detailed. Pension expenses, a significant mandatory expenditure, have risen rapidly, and while economists suggest pension reform, they acknowledge its potential difficulty.