Sequential economic growth eases in the third quarter of 2025

Sequential growth grounds to a near halt in Q3: Brazil's GDP growth decelerated to a near stop in the third quarter, rising a mere 0.1% on a seasonally adjusted quarter-on-quarter basis in Q3, following a downwardly revised 0.3% expansion in the previous quarter. Q3’s moderation was slightly sharper than markets had expected. The slowdown will have been driven by the Central Bank keeping its policy rate at a nearly two-decade high since June 2025.

Elevated interest rates start to cool economy: Compared with the previous period's data, the reading for private consumption worsened in Q3 (+0.1% in seasonally adjusted quarter-on-quarter terms vs +0.6% in Q2). In contrast, readings strengthened for government consumption (+1.3% vs 0.0% in Q2), fixed investment (+0.9% vs -1.5% in Q2), exports of goods and services (+3.3% vs +1.0% in Q2) and imports of goods and services—which detract from GDP (+0.3% vs -2.4% in Q2). Looking at sectoral data, the agricultural sector rose 0.4%, and the industrial sector 0.8%; meanwhile, the services sector—which accounts for roughly 60% of GDP—grew 0.1%. On a year-on-year basis, GDP expanded 1.8% in Q3, following an upwardly revised 2.4% expansion in the previous quarter. Q3’s growth was the softest since Q1 2022.

2026 GDP growth to decelerate to six-year low: Our panelists expect sequential GDP to roughly flatline in Q4, as the Central Bank kept interest rates at their highest level in nearly two decades throughout H2 2025. Looking further ahead, our Consensus is for GDP to expand at the softest clip since the pandemic-induced contraction in 2020 in 2026. The agricultural sector will normalize following a bumper harvest in 2025, and fixed investment will suffer, particularly in H1 2026, from the pressure of elevated interest rates. Extreme weather events remain a key downside risk to the outlook; conversely, an eventual trade deal and reduction of the 50% U.S. tariffs on Brazilian goods poses an upside risk. Factors to monitor include changes in domestic fiscal policy ahead of the 4 October 2026 general election and the impact on inflation and monetary policy, plus investor sentiment and the Brazilian real.

Panelist insight: Reflecting on the 2026 outlook, analysts at the EIU added: “Expansionary fiscal and quasi-fiscal measures under the Lula administration—including a new payroll-related credit programme and a rise in the tax threshold for lower income households—will cushion the slowdown, but will not fully offset the drag from high domestic borrowing costs.”

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