Brazil: Growth outlook and inflation risks – Societe Generale

Societe Generale’s Dev Ashish has released a report analyzing Brazil’s updated macro-fiscal projections from the Finance Ministry, revealing lower growth forecasts for 2026-27 and persistent household debt issues. The ministry has lowered its 2026 GDP growth forecast to 2.0% from 2.3% and its 2027 forecast to 2.3% from 2.5% (SGe: 1.5%).

This shift is attributed to ongoing restrictive monetary policy, weaker services activity, and a softer industrial outlook. Brazil is currently experiencing a gradual cyclical slowdown, as high borrowing costs impact services and manufacturing. Household debt-service burdens have reached a historic high of 28.9% of income, limiting the impact of strong wage growth and a tight labor market on consumer spending.

The government has revised its 2026 IPCA inflation forecast downward to 4.9% from 5.1%, but has raised the 2027 inflation forecast to 3.8% from 3.6%. While August inflation eased to 4.2% year-over-year, the ministry remains concerned about upside risks from higher oil prices, El Niño, and potential supply disruptions. The government’s optimistic growth recovery assumption in 2027 appears questionable, as fiscal support is set to diminish after the election, agriculture faces more weather risks, and households grapple with elevated debt-servicing costs.