Brazil economic outlook, March 2025 (2025)

The rise in inflation has caused a rise in interest rates that further threatens consumer spending. Indeed, the volume of retail sales already slowed dramatically in the last two months of 2024.10 Real retail sales were up just 1.6% from a year earlier in December—a clear deceleration from the 6.1% growth seen in October. The spending slowdown was most apparent for motor vehicles and construction materials, both of which are likely more susceptible to changes in interest rates. The number of vehicle registrations has fallen for three consecutive months.11

The slowdown in consumer spending is not limited to durable goods, however. Spending on nondurables such as pharmaceuticals and personal care products has also waned.12The weakening of the real and the higher interest rates that accompanied it coincided with a plunge in consumer confidence. One measure of consumer confidence fell to its lowest level since August 2022 in February.13

Trade may bring opportunities

The external sector weighed on GDP growth last year. Goods exports fell 0.8% in 2024, compared to the previous year.14 Most of the weakness was due to an 11% decline in agricultural exports. Mining and manufacturing exports were both up a little more than 2.5% over the same period.15

Although export growth continued to weaken in January, there are several reasons to expect it will turn around this year. The first reason is that Brazil is likely to avoid trade barriers erected in the United States. The United States has threatened tariffs on more countries this year but is primarily focused on countries with which it runs a deficit. Fortunately, it runs a surplus with Brazil, which will likely prevent the United States from erecting such barriers against Brazil, at least in the near term. Assuming such an outcome, Brazilian exports may become more favorable to US importers, as the cost of importing goods from other countries becomes more expensive. A weaker currency will also help on the cost front.

The second reason to be optimistic about Brazil’s exports this year is due to the macroeconomic stability now seen in Argentina. The exchange rate between the two countries finally stabilized in 2024.16 This helped push exports to Argentina up 57.9% from a year earlier in January.17 Exports to Argentina were worth just US$13.8 billion in 2024, but with such fast growth rates, it could quickly become a key driver of export growth for Brazil.

The third reason to be optimistic about international trade is that a trade deal between the European Union and several Latin American countries, including Brazil, is moving forward.18 Assuming the deal is ratified, it will lower trade barriers for Brazilian exports to the sizable EU market. Indeed, Brazilian goods worth just shy of US$50 billion were exported to the European Union in 2023.19

A boost in exports is unlikely to be enough to offset the expected slowdown of domestic demand. The rapid rise in interest rates has already slowed the pace of consumer spending and dented consumer confidence. Additional rate hikes are not off the table despite stabilization in the foreign exchange market. Inflation continues to run above the BCB’s target range, which raises the probability of additional rate hikes and slower domestic demand. Overall, Brazil’s economy is expected to post positive growth this year, but it will be at a considerably slower rate.

Brazil economic outlook, March 2025 (2025)
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