Brazil‘s Economic Growth Decelerates Sharply in Second Quarter, Though Exceeds Expectations
SÃO PAULO – Brazil’s economy slowed considerably in the second quarter, expanding by just 0.1% according to data released today,marking a steep drop from the revised 1.3% growth reported in the first quarter. Despite the deceleration, the figure surpassed forecasts from a Reuters poll.
On a year-over-year basis,GDP expanded 2.2%, aligning with expectations. The first quarter’s performance benefited from a boost in seasonal farm output.
Economists note the data signals a gradual slowdown in household consumption. Gustavo Rostelato, an economist at Armor Capital, stated the GDP data provided few new elements, reinforcing this trend.
The slowdown comes as brazil’s central bank has aggressively tightened monetary policy, lifting its benchmark interest rate by 450 basis points since September to 15%, a near two-decade high, and holding steady in July. Policymakers have indicated plans to maintain this stance for a “very prolonged” period to curb inflation.
Weaker growth supports an improving inflation outlook, potentially allowing the central bank to begin cutting interest rates around the end of the year, according to Liam Peach, a senior emerging markets economist at Capital Economics. He forecasts GDP growth of around 0.3% quarter-over-quarter in the coming quarters, with full-year growth for 2025 at 2.3%, and below 2.0% next year.
The Finance Ministry has flagged a slight downward bias to its 2.5% growth forecast for this year, following the 3.4% expansion recorded in 2024, citing the sharper-than-expected second-quarter deceleration and the lagged effects of monetary tightening.
Key indicators within the second quarter data reveal household consumption rose 0.5% from the previous quarter, supported by government measures to sustain wage gains, but slowed from a 1.0% increase in the first quarter. Investments fell 2.2%, pressured by high borrowing costs, while government consumption declined 0.6%.
Services, accounting for approximately 70% of Brazil’s GDP, expanded 0.6% from the prior three months, supported by a robust labor market.