Key facts
- Bradesco cut its 2027 GDP forecast to 0.4% and XP to 0.3%, both from 1.0% previously.
- Itau and BTG Pactual last week reduced their 2027 forecasts to 0.5% and 0.6% respectively.
- Brazil's central bank ended a run of cuts this week and kept its benchmark rate at 13.75%.
- The Treasury said each 1-percentage-point growth shortfall would cut federal tax revenue by 16.6 billion reais ($3.02 billion).
- All four institutions continue to project a primary deficit for 2027, ranging from 0.1% to 0.6% of GDP.
Brazil's largest lenders have cut their economic growth forecasts for 2027, a year in which the government's budget bill projects gross domestic product growth of 2.46%. Bradesco lowered its 2027 GDP forecast to 0.4% on Friday and brokerage and financial platform XP cut its estimate to 0.3%, both down from 1.0%. The revisions mirrored moves by Itau, Brazil's largest lender, and BTG Pactual, which last week reduced their forecasts to 0.5% and 0.6% respectively.
All four cited expectations that Brazil's interest rates will remain elevated for longer because of a worsening inflation outlook. The central bank ended a run of cuts this week and kept its benchmark rate at 13.75%. Growth within the range of the four forecasts would mark the weakest performance in Latin America's largest economy since 2016, excluding 2020, when the COVID-19 pandemic hit.
The weaker outlook adds to longstanding concerns over gross debt levels of nearly 83% of GDP, or 95.2% under the International Monetary Fund's metrics, well above most emerging-market peers. Lula's victory over right-wing challenger Flavio Bolsonaro in an October 25 runoff election triggered a sharp weakening of Brazil's real currency and a rise in long-term borrowing costs.
"The combination of tighter financial conditions, weaker confidence and slower credit growth should deepen the loss of momentum over coming quarters," Bradesco said. The weaker outlook heightens the stakes for Lula as he considers his next government's economic program. With mandatory public spending climbing rapidly, the government has relied heavily on assumptions of stronger tax revenue growth to improve public finances, and a sharper-than-expected slowdown would undermine that strategy.
The Finance Ministry said it was reviewing its macroeconomic assumptions and could not comment before the expected release of its updated forecasts later this month. In a fiscal risk report released this week, the Treasury said GDP growth was "the largest source of uncertainty for revenue estimates," calculating that every 1-percentage-point shortfall in growth would cut federal tax revenues by 16.6 billion reais ($3.02 billion).
Before the recent deterioration in the outlook, the government had projected an effective primary surplus of 18.6 billion reais in 2027, equivalent to 0.13% of GDP and the first effective surplus since 2022. That projection was made before Lula issued several election campaign pledges, including a larger Bolsa Familia welfare program, direct payments to micro-entrepreneurs and expanded student benefits. Each of the four institutions that cut their GDP forecasts continues to project a primary deficit next year, ranging from 0.1% to 0.6% of GDP.