1.1. Highlights of Brazil

Brazil in perspective

Brazil closed 2025 with a GDP of R$12.7 trillion, roughly US$2.3 trillion, which keeps it among the ten largest economies in the world and the largest in South America and Latin America (IBGE). Covering 8.51 million km², the country accounts for 48% of South American territory. With 213.4 million inhabitants (IBGE estimate for 1 July 2025), it is the sixth most populous country in the world.

Foreign direct investment into Brazil totalled US$77.7 billion in 2025, the highest figure in seven years (Central Bank of Brazil), and the country ranks among the world’s five main destinations for foreign direct investment (UNCTAD).

From approval to implementation

The institutional foundations of this economy were built in three waves of reform. Between the 1990s and the 2000s, the Real Plan, inflation targeting, the floating exchange rate and the Fiscal Responsibility Law stabilised prices and disciplined the budget, while privatisations and concessions opened infrastructure to private capital. Since 2016, a third round has changed the rules for the allocation of public resources and the coordination of private agents: labour and pension reform, Central Bank autonomy, new legal frameworks for sanitation, public procurement, bankruptcy and guarantees, and the digital financial infrastructure of Pix and Open Finance.

In 2026, the frontier shifted from approval to execution. The main reforms have left Congress and entered the implementation phase, summarised in Table 1.

Table 1 – Selected structural reforms and implementation stage (2026)

Source: National Congress; Pezco Economics database of federal normative acts.

For companies operating in Brazil, the most consequential change is the tax reform. In 2026, the new consumption taxes are running in a test phase, at rates of 0.9% (CBS, federal) and 0.1% (IBS, subnational), creditable against current taxes. In 2027, the CBS moves to its full rate, PIS and Cofins are abolished, the new Selective Tax takes effect and the IPI rate is zeroed, except for the Manaus Free Trade Zone. The replacement of ICMS and ISS by the IBS runs until 2033. The design brings the Brazilian system close to a modern VAT, reduces cascading and shifts taxation to the destination. As approved, the change preserves the level of tax collection, currently equivalent to 33% of GDP in taxes and social contributions (2024 figure from the General Government Fiscal Statistics, IBGE), while altering its structure. In the short run, it requires companies to adapt tax systems, contracts and pricing.

The IMF projects growth of 2.4% in 2026 and 2.2% in 2027, in line with post-reform potential growth estimates of 2.0% to 2.5% per year. As a reference, between 2017 and 2019, before these changes matured, the economy grew on average 1.4% per year.

The short-term picture: a landing under high interest rates

The economy grew 2.3% in 2025, after 3.4% in 2024, averaging 3.3% per year over 2021–2025 (IBGE). The slowdown bears a cyclical signature and is associated with monetary tightening. The Selic rate rose to 15% per year in June 2025, its highest level since 2006, and the sectors most sensitive to interest rates lost momentum: manufacturing changed by −0.2%, construction by +0.5% and commerce by +1.1% over the year. In the opposite direction, agriculture (+11.7%) and extractive industries (+8.6%) sustained the expansion. The supply-led growth pattern described in previous editions of this guide persists; what changed was the demand cycle.

On the demand side, investment is the component most sensitive to interest rates. Gross fixed capital formation grew 2.9% in 2025 and 0.4% in the four quarters to March 2026, and household consumption rose 1.3% in 2025 under tighter credit conditions. The investment rate reached 17.1% of GDP in 2025, against gross saving of 14.4%. The resulting external financing need, of 2.7% of GDP, was more than covered by foreign direct investment inflows (IBGE; Central Bank). Exports moved against the domestic cycle, up 6.2% in 2025 and 7.6% in the four quarters to the first quarter of 2026 (IBGE).

The labour market is operating at its tightest level on record. Unemployment stood at 5.4% in the quarter to June 2026, the lowest for the period since the series began in 2012, and the real wage bill reached R$380 billion (IBGE). The combination of record employment and slowing activity explains part of the Central Bank’s caution in the pace of rate cuts.

Inflation has converged to within the target band. The IPCA closed 2025 at 4.26%, the lowest annual rate in six years, and stood at 4.44% over the 12 months to July 2026, below the 4.50% ceiling. This convergence allowed the Copom to begin cutting the Selic in 2026, to 14.00% per year as of August, a level that still implies high real interest rates. The exchange rate followed the improvement: the dollar fell from R$6.18 to R$5.47 over 2025, an 11% appreciation of the real and the currency’s best annual performance in a decade.

The point of attention lies in the public accounts. The central government closed 2025 with a primary deficit of R$61.7 billion, within the target set by the fiscal framework (National Treasury), and general government gross debt moved from 78.7% of GDP in December 2025 to 81.9% in June 2026 (Central Bank), reflecting rollover costs in a period of high interest rates. Stabilising this trajectory is currently the country’s main macroeconomic challenge.

Brazil in the global trade realignment

Brazil’s trade flow (exports plus imports) rose from 24.7% of GDP in 2014 to 35.3% in 2025, and exports reached a record US$349 billion in the year (MDIC). This openness reflects the agreements signed since 2016 and the country’s position in the global supply of food, iron ore and oil.

The new tariff environment in the United States tested this integration without reversing it. The United States raised tariffs on Brazilian products to 50% in August 2025 and rolled them back with exemption lists from November. After a Supreme Court ruling against the legal basis of the global tariffs, it set a specific 25% tariff in July 2026, excluding beef, coffee, orange juice, aircraft and minerals. Bilateral negotiations remain open. Under this regime, exports still grew by the 6.2% recorded in the year, a result that suggests a redirection of destinations and firm demand for the products in which Brazil is competitive.

For Brazil–Switzerland relations, the central change of 2026 lies in the agreements with Europe. The Mercosur–EFTA agreement, signed in September 2025 in Rio de Janeiro, was ratified by Brazil and Uruguay in mid-2026. In Switzerland, the approval process is following its parliamentary course: after a close vote (96 to 86) in the National Council in June 2026, the matter is now before the Council of States, and the timetable may include a referendum. The EU–Mercosur agreement, signed in December 2025, awaits an opinion from the Court of Justice of the European Union, expected towards the end of 2027. Once the approval stages are concluded, the EFTA agreement will eliminate tariffs on around 96% of Swiss exports to Mercosur over a horizon of up to fifteen years, with tariff reductions in both directions of trade.

Table 2 – Brazil–Switzerland in figures

Sources: Swiss Federal Department of Foreign Affairs (FDFA); Central Bank of Brazil, Direct Investment Report 2025. The stock measured by the SNB, CHF 15.4 billion, differs from the BCB figure for statistical reasons (bilateral position in Brazil versus Swiss investment abroad).

Challenges ahead

The first challenge is fiscal. With gross debt above 80% of GDP and high real interest rates, stabilising the debt-to-GDP ratio requires the gradual increase in primary results envisaged in the fiscal framework. The government taking office in January 2027 will carry this agenda forward, whatever the outcome of the October 2026 election.

The second is operational. In 2027, the new tax system operates at real scale for the first time, with the full CBS coexisting with ICMS and ISS until 2033. The calibration of the reference rate and the pace of regulation will tend to define first-year compliance costs, with direct effects on corporate cash flow and pricing.

What is contracted in law, such as the tax transition, the fiscal framework targets and the sector frameworks, does not depend on the political cycle; the speed of fiscal consolidation and the ambition of the trade agenda do. Hence the reading for 2027: Brazil’s business environment will depend less on passing new laws and more on executing the ones that already exist. In the case of the EFTA agreement, the conclusion of the parliamentary approval processes will define when its tariff benefits become available to companies on both sides.

Author: Matheus Lazzari Nicola
Pezco Economics

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