Brazil Economic Outlook. December 2025

Summary

Growth and inflation have slowed under tighter monetary conditions, a weaker fiscal impulse, and a challenging global backdrop, supporting expectations of an imminent easing cycle. GDP is set to grow 2.2% in 2025 and 1.7% in 2026, with inflation likely ending this year at 4.4% and next year at 3.8%.

Key points

• Key points:
• Growth is expected to be around 2% in 2025–27, with GDP forecast to expand by 2.2% in 2025, 1.7% in 2026, and 2.2% in 2027. Tighter monetary conditions and a weaker fiscal impulse will bring growth closer to its potential, below the 3.2% average seen in 2022–24. Risks to the outlook are broadly balanced.
• Inflation will likely remain near the upper bound of the 1.5%–4.5% target range. Recent readings have surprised to the downside, mainly due to weaker demand pressures, a stronger currency, and subdued commodity prices. Convergence to 3% seems unlikely, at least without clear fiscal consolidation or a sharper-than-expected growth slowdown.
• A monetary easing cycle is expected to begin in early 2026. The ongoing moderation in domestic demand and inflation supports the view that the Selic rate could end 2026 around 11.50% and converge to neutral levels in 2027. Stronger fiscal spending ahead of the 4Q26 elections poses upside risks to this outlook.
• The Brazilian real is likely to weaken somewhat moving forward, reflecting a more hawkish Fed, a declining Selic, and pre-election uncertainty. This expected depreciation, along with soft demand prospects, should help narrow the current account deficit, which has edged up recently.

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