Economic Outline

Economic Indicators

Brazil is the world's ninth-largest economy. The country is still working on rebuilding itself after the recession that happened nine years ago when the economy contracted by almost 7%. Since then, Brazil hasn’t been able to grow at the same pace it was used to during the decade before the recession hit. Nevertheless, the Brazilian economy has been experiencing a slow but steady recovery in recent years. After growing by 2.9% in 2022, the first half of 2023 saw a robust recovery in economic activity, driven by an exceptional agricultural harvest and resilient household spending. Consumer spending continued to remain strong in the second half, bolstered by a robust labour market, while investment has declined, indicating a heightened sensitivity to the high-interest rate environment. For the year as a whole, the IMF estimated growth at 3.1%. As agricultural exports will have a lower impact in the years to come, GDP growth is expected to decelerate to 1.5% this year and 1.9% in 2025.

In 2023, Brazil experienced a significant decline in its fiscal position due to slow revenue growth, substantial expenditure hikes primarily linked to the expansion of Bolsa Familia social benefits, and the resolution of outstanding court-ordered "precatorio" payments. Fitch projected that the central government's primary balance deteriorated to a 2.2% GDP deficit from a 0.5% surplus in 2022. The broader general government primary balance also worsened to a 2% deficit in 2023 from a 1.2% surplus in 2022 due to a shrinking primary surplus among subnational governments. This, combined with a somewhat larger interest bill, elevated the overall deficit to around 8%. The 2024 budget aims for a federal primary balance of 0% of GDP. However, achieving this goal seems increasingly difficult given the uncertainties surrounding revenues and spending. The government debt-to-GDP ratio has resumed an upward path in 2023, reaching 88.1% from 85.3% one year earlier (IMF), which should continue over the forecast horizon, with debt standing at around 92.4% of GDP by 2025. Inflation declined markedly over 2023, averaging 4.5%, allowing the central bank to ease monetary policy, reducing the policy rate from 13.75% in July to 12.25% by November 2023.

The labour market has shown signs of improvement, with the unemployment rate dropping to 7.7% in September 2023, the lowest level recorded since June 2015. Job growth was primarily driven by the services sector, particularly domestic services. However, the government believes that the real figures are significantly higher, as it is estimated that almost two-fifths of the country's employed workforce, have informal jobs. The IMF expects the unemployment rate to remain stable this year and the next. Overall, the country continues to face social issues and has one of the highest levels of inequality in the world, with high disparities between the country's regions. Even though Brazil has lifted 28 million people out of poverty in the last 15 years, 10% of the population still lives in poverty, while the country's richest 5% have the same income as the remaining 95% of the population.

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