Brazil’s economic outlook for 2025 reveals both potential for growth and significant challenges, as predictions indicate the economy will decelerate to around 2%. This decline, based on factors like high interest rates, unfavorable financial conditions, and reduced fiscal stimuli, diverges sharply from the 3.5% anticipated growth rate for 2024. Notably, the strength of the agriculture sector, along with what economists call a “statistical carryover” from 2024, plays a key role as analysts attempt to navigate the shifting economic terrain.
The deceleration is expected to showcase itself particularly during the latter half of the year, with warnings from various economists about the likelihood of experiencing a technical recession defined by two consecutive quarters of negative GDP growth. The median forecast drawn from 76 consultancies and financial institutions conducted by Valor suggests GDP growth could hover between 1.3% and 3% for 2025.
César Garritano, chief economist at Somma Investimentos, comments on the delicate balance, stating, “Unemployment is low, and the agricultural sector is expected to perform strongly. [...] achieving growth near 3% [...] will be significantly harder in 2025.” His predictions align with the median outlook, hinting at 1.9% growth, as he highlights the dual role of agriculture’s resilience amid adverse climatic conditions.
On the opposite end, economist Leonardo Costa from ASA anticipates even more subdued growth, projecting it could fall as low as 1.5% due to anticipated gradual slowdowns throughout 2025. He emphasizes the impacts of high interest rates as detrimental to overall economic activity.
Indeed, agriculture’s foundational contribution to Brazil's GDP cannot be understated. Despite challenges faced last year, the agricultural sector surged by 16.3%, with expectations for 2025 estimating approximately 5% growth. Experts assert this performance could catalyze positive spillovers for other sectors of the economy, considering agriculture's interconnections with services and industry.
Yet as Garritano points out, cyclical sectors like services and industry present less rosy predictions, especially amid tightening monetary policy initiated by the Central Bank. This scenario leads to concerns over how sustainable growth can be, with projected increases for these sectors potentially settling around 1.5% for 2025, following more substantial growth reported recently.
Meanwhile, the demand side of Brazil’s economy reveals additional layers. The recent rapid deterioration of financial conditions—largely due to fiscal policies—raises questions about household consumption, which is expected to decelerate from significant growth observed this year. Forecasts anticipate this consumption to incrementally contribute to GDP growth, albeit less vigorously than before.
“When we look at demand, if investment, something has enthused everyone this year, slows significantly, that's not good,” Garritano noted, sounding alarms about Gross Fixed Capital Formation (GFCF). Though GFCF performance is not predicted to enter negative territory, it is expected to sharply decline from the solid growth of 7% to 8% projected for 2024.
The looming challenges are compounded by the potential impact of foreign relations, particularly concerning U.S. President-elect Donald Trump. Economic fluctuations may occur due to possible currency depreciation stemming from international uncertainties, as observed previously during Mr. Trump’s tenure.
“The year 2025 is set to be very challenging for the government, families, and businesses,” Galhardo admits, acknowledging the unpredictable elements and how they could play out as the country transitions through another electoral year.
The outlook for Brazil's economy as it heads toward 2025 remains layered with uncertainty. High interest rates and the interplay of agricultural strength against cyclical sector vulnerabilities set the stage for what could become not just another typical economic year but one marked by significant transitions and tests.