1.1. Highlights of Brazil

Brazil in perspective

Brazil is the largest economy in South America and Latin America, and ranks among the top ten largest economies globally—with a GDP of US$2.18 trillion in 2024. Covering a land area of 8.51 million km², it accounts for approximately 48% of South America’s territory. With a population of 212 million people, it ranks sixth among the world’s most populous countries, representing a significant consumer market.

The economic environment has undergone considerable transformation since the 1990s. Important reforms were implemented between the 1990s and the 2000s, notably economic stabilisation achieved through the Real Plan and inflation targeting, a floating exchange rate regime, fiscal responsibility legislation, and the privatisation and concession of public services, among others. These measures have significantly enhanced Brazil’s productivity and growth potential.

Since 2016, a renewed and robust cycle of structural reforms has been underway, significantly contributing to: 1) improved coordination and cooperation among economic agents, and 2) better allocation of public resources. Notable progress has been made, particularly in the following areas:

Table 1 – Some of the economic reforms adopted since 2016

Source: Federal Government, National Congress e media.

In addition to reforms, a wave of innovation has emerged, exemplified by PIX (instant payment system), the Central Bank’s digital currency (DREX), and Open Finance, among others, creating opportunities to reduce transaction costs. These initiatives collectively contribute to reducing Brazil’s structural costs (“Custo Brasil”) and enhancing economic growth potential. Preliminary estimates suggest medium-term economic growth potential has increased by approximately 1.0 percentage point compared to the average growth observed between 2017 and 2019 (1.4%), driven by structural reforms and opportunities in renewable energy and the oil and gas sectors.

The World Bank, in its 2025 outlook, estimates that growth will stabilise around 2.3% per annum in the medium term. The International Monetary Fund (IMF) projects an average growth potential of 2.5%, slightly above previously published levels.

Short-term economic outlook

The Brazilian economy has demonstrated remarkable resilience since 2021. The average GDP growth rate for 2021-2024 was 3.6%. Notable sectors include agriculture (2.7%), electricity, gas and sanitation (5.3%), construction (5.8%), transportation and storage (4.7%), information and communication (7.0%), and other service activities (7.2%).

This positive performance indicates that the economic boom was supply-driven, facilitated by economic reforms implemented in preceding years. From the demand perspective, the same four-year period highlights strong average growth rates in imports (6.8%), exports (5.5%), and gross fixed capital formation (4.4%). Private consumption (3.7%) reflects real wage increases in recent years, whereas government expenditure growth (3.0%) remained below GDP growth.

Growth in exports and imports reflects greater economic openness. In a decade, Brazil’s trade flow (exports plus imports) rose from 24.7% of GDP in 2014 to 35.5% of GDP in 2024, driven by trade agreements signed between 2016 and 2022, alongside Brazil’s emergence as a significant global supplier of grains, iron ore, and oil and gas.

Economic stability and labour law reforms have led to a decline in the unemployment rate from 14.9% in Q1 2021 (the highest historical level due to the COVID-19 pandemic) to 6.2% by Q4 2024 (the lowest on record). Employment surpassing 104 million people and recovery in real individual income have raised real aggregate income to its highest historical level, around R$ 341 billion.

Despite strong economic growth, consumer price inflation has decelerated following sharp increases in 2021-2022 caused by pandemic-related supply shocks and the Russia-Ukraine war. The 12-month IPCA (Consumer Price Index) rate fell from 12.13% in April 2022 to 4.71% in December 2024. Similarly, the 12-month IGP-M (General Market Price Index) declined from 37.04% in May 2021 to 6.53% in December 2024, including 14 consecutive months of deflation from April 2023 to May 2024. This disinflation enabled the reduction cycle in the Selic rate, which peaked at 13.65% in July 2023 before decreasing to 10.40% by August 2024.

Geopolitical tensions halted the downward trajectory of the Selic rate. Commodity prices returned to pre-pandemic levels, but uncertainties arising from regional conflicts raised monetary authorities’ concerns. Additionally, in 2024, the world’s two largest economies exhibited divergent behaviours: on one hand, the resilience of the US economy, with a stronger-than-expected labour market delaying interest rate cuts and supporting a strong dollar; on the other hand, the weak Chinese economy negatively impacted iron ore prices, suggesting a potential reduction in trade surplus. Both factors drive depreciation pressures on the Brazilian Real.

Domestically, political uncertainty regarding solutions to public debt issues exacerbated domestic instability and contributed to the depreciation of the Real. This impasse resulted in the Transitional Amendment—expanding mandatory expenditure—and replacing the Spending Cap with a new fiscal framework. Consequently, the central government’s net financing requirement increased from R$ 213.45 billion in 2021 to R$ 285.46 billion in 2024, a 33.7% rise in four years.

In April 2024, the government revised its 2025 primary balance target from a surplus of 0.5% of GDP to 0%, raising concerns over the government’s commitment to controlling public debt escalation. In 2024, the Real depreciated by 25.1%, becoming the most depreciated currency among G20 economies. A significantly devalued Real heightens expectations that the Central Bank may raise the Selic rate again to prevent inflation resurgence.

Challenges ahead

Structural reforms implemented from 2016 to 2022 have created favourable conditions for medium-term economic growth, expected to hover around 2.5% annually. However, some short-term challenges must be addressed to sustain this outlook.

The principal challenge lies in the regulation and implementation of the tax reform approved in 2023, amid the necessity to revise public budgeting criteria. Failure may result in either an excessively high tax burden beyond taxpayers’ capacity or escalating public debt—both outcomes divert resources from the private to the public sector, compromising sustainable growth.

In 2025, trade wars present a dual challenge. Tariffs may reduce GDP, significantly impacting key sectors such as agricultural machinery and aircraft manufacturing, causing currency volatility and inflationary pressures, making the economy more vulnerable and directly affecting consumers. Yet, this challenging scenario might also present opportunities—lower competitiveness of tariffed countries’ products could favour Brazilian exports, and global economies seeking alternative supply chains might redirect trade to Brazil. Additionally, this situation could incentivise new trade agreements and enhance reliance on the domestic market, diversifying Brazil’s growth sources in an increasingly protectionist global environment.

Authors: Matheus Lazzari Nicola
Pezco Economics

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