Brazil trims GDP outlook, sees slower recovery amid cautious monetary easing cycle

On Tuesday, Brazil’s government announced a revision to its economic growth forecast for 2026, dropping it to 2.0% from the previous projection of 2.3%. The Economic Policy Secretariat of the Finance Ministry attributed the decline to expectations of weaker performance in the services and industrial sectors, despite a more optimistic outlook for agriculture.

The government also revised its forecast for 2025, dropping the projected GDP growth to 2.3% from the earlier prediction of 2.5%. The ministry explained that the downward revisions reflect a more gradual pace of monetary easing, with some economic recovery expected to unfold in later years. The ministry expects an average GDP growth rate of 2.6% between 2028 and 2030.

Brazil's central bank initiated a cautious easing cycle in March, cutting its key interest rate by 125 basis points to 13.75%. However, real interest rates remain among the highest globally as authorities strive to reduce inflation, currently hovering around 4.2%, to their 3% target. The government also lowered its 2026 inflation forecast to 4.9% from the previously estimated 5.1%.

It increased its projection for inflation in 2025 to 3.8% from 3.6%, citing the impact of a stronger El Nino weather pattern on the upcoming harvest. These updated forecasts will serve as the foundation for the government’s estimates of annual revenue and spending, to be published later this week. Despite the downward revisions, the government’s growth projections remain more favorable than the market estimates.

Economists surveyed by the central bank anticipate GDP to expand by just under 1.9% this year, followed by a slight contraction to just over 1.4% next year.