Brazil's Economy Cooled In 2025 Under the Weight of High Interest Rates

• Brazil's economy grew 2.3% in 2025, its weakest performance since the COVID pandemic in 2020, as high interest rates squeezed consumption and investment. The expansion slowed from 3.4% in 2024, reflecting a sharp moderation in momentum amid restrictive monetary policy aimed at steering inflation, which stood at 4.1% in the 12 months to mid-February 2026, toward the central bank's 3% target.
• Growth in Brazil's services sector, the ​main engine of ⁠its economy, slowed to 1.8% in 2025 from 3.8% in 2024. Buoyed by a record harvest, particularly soy and corn, agriculture expanded 11.7%, while industry grew 1.4%, supported by oil and gas extraction.
• Weaker growth in household consumption, which rose 1.3% in 2025 compared with 5.1% in 2024, was mainly due to the adverse effects of contractionary monetary policy, while gross fixed capital formation, a proxy for long-term investment, increased 2.9%, well below the 6.9% expansion recorded the previous year.
• Notably, Brazil's economy had proved slow to cool following stimulus measures introduced when President Luiz Inacio Lula da Silva took office in 2023, which boosted demand and helped growth outperform earlier expectations. Further, central bank policymakers paused an aggressive tightening cycle last July and have since kept the benchmark Selic rate at 15%, the highest in nearly two decades. However, in January 2026, they signalled their intention to begin cutting rates this month.
• Brazil, Latin America's largest economy, posted just 0.1% growth in the fourth quarter from the previous three months, in line with a Reuters poll. That reinforced expectations of imminent rate cuts after the central bank signalled ​it would start monetary easing, despite above-target inflation.
• The central bank said in December 2025 it expected the economy to grow 2.3% in 2025 and slow further to ‌1.6% growth ⁠this year. The Finance Ministry, however, reiterated in a statement on Tuesday, March 3, 2026, a more upbeat forecast of 2.3% growth this year, arguing that a stronger slowdown in agriculture would be offset by faster expansion in industry and services.

(Source: Reuters)