A modest return to growth in Q4 2025

Q4 reading disappoints markets: Brazil's GDP grew by a mere 0.1% in seasonally adjusted quarter-on-quarter terms in Q4, following a downwardly revised flat reading in the prior quarter. Q4’s print came in slightly below market expectations. In annual terms, the economy expanded 1.8% in Q4, stable from the prior quarter's reading. In 2025 as a whole, the GDP rose 2.3%, marking a deceleration from the prior year’s 3.4% and the weakest performance since 2020’s pandemic-related contraction.

Economy squeezed by high interest rates: Compared with the previous quarter's data, figures in Q4 improved for private consumption (0.0% in seasonally adjusted quarter-on-quarter terms vs -0.1% in Q3) and exports of goods and services (+3.7% vs +3.6% in Q3). In contrast, readings softened for government consumption (+1.0% vs +1.3% in Q3), fixed investment (-3.5% vs +0.1% in Q3) and imports of goods and services (-1.8% vs -0.3% in Q3). Private spending was flat in Q4, as high interest rates dampened consumption of goods and services, despite easing inflation and a resilient labor market. The external sector also contributed positively to growth; exports rose at a faster pace while imports contracted. However, the fall in imports partly reflects weak domestic demand. Meanwhile, growth in government consumption was supported by a broad range of fiscal support measures and social spending. In contrast, fixed investment contracted sharply in Q4, as tight domestic credit conditions weighed on investor demand for capital goods. Looking at sectoral data, the agricultural sector rose 0.5%, the industrial sector contracted 0.7%, and the services sector—which accounts for roughly 60% of GDP—grew 0.8%.

Fiscal stimulus to boost sequential growth in Q1: Following sluggish momentum in H2 2025, our Consensus is for sequential growth to accelerate to a one-year high in Q1 amid new fiscal stimulus measures ahead of October’s elections. Moreover, minimum-wage hikes and a recent rise in the tax threshold for low-income households that came into effect in January should support disposable incomes and private consumption. That said, looking at 2026 as a whole, GDP growth is seen decelerating further from 2025, clocking a six-year low. Softer growth in investment, public spending and exports of goods and services will weigh on momentum. On the flipside, private spending should gain steam, aided by lower inflation and interest rates. A protracted conflict in the Middle East poses a downside risk to growth, as it could fuel inflation and currency weakness, prompting the Central Bank to ease less than expected.

Panelist insight: On the outlook for the coming quarters, EIU analysts commented: “We expect economic activity to gather momentum in the coming quarters as new fiscal stimulus measures begin to feed through to household incomes. […] We expect growth to moderate again in the second half of the year as the initial impulse from government spending fades and the contribution from the external sector eases following a strong performance in 2025. However, the slowdown will be partly offset by the start of a monetary loosening cycle by the BCB later this month.”

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