In the second quarter of 2025, Brazil’s economy showed a notable deceleration, yet still outpaced expectations with service sector strength and gains in the extractive industry. Official data from the IBGE revealed a 0.4% GDP growth over the previous quarter. This figure pleasantly surprised economists, who had anticipated a modest 0.3% as per a Reuters poll.
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Sector performance highlights a mixed picture
Services, accounting for nearly 70% of the GDP, saw a 0.6% increase thanks to resilient job markets. Industrial production rose by 0.5%, buoyed by a significant 5.4% rise in extractive industries. However, farm output dipped slightly by 0.1%, after robust contributions earlier in the year.
The growth marked quite a drop from the revised 1.3% expansion in the first quarter. This was when the agricultural sector was booming. Nonetheless, year-on-year GDP climbed by 2.2%, which was aligned with market projections.
Monetary policy stance remains tight
The Central Bank of Brazil took aggressive actions on interest rates, raising them to 15% over the past year. This level nears a peak not seen in two decades, with a staggering hike of 450 basis points since September. Policymakers, in July, decided not to alter rates further, indicating the strict approach might persist to curb inflation.
Economists see a gradual slowdown ahead
Despite these figures, analysts point towards a gradual cooling. Gustavo Rostelato from Armour Capital noted a gradual consumption decline. Additionally, Liam Peach of Capital Economics foresaw weaker growth aiding inflation improvement. He even suggested the central bank could consider easing monetary policy. Peach predicts a 0.3% quarterly growth ahead, expecting 2.3% growth for the year and under 2.0% for 2026.
Consumption and investment trends
Households saw a 0.5% rise in consumption during the second quarter, bolstered by government efforts on wage stability. Yet, this increase pales in comparison to the 1.0% witnessed previously. Investments, represented by gross fixed capital formation, dropped by 2.2% following earlier growth, influenced by elevated borrowing costs. Government consumption also declined by 0.6%.
The second quarter’s slowdown might impact growth forecasts, acknowledged the Finance Ministry. They’ve modestly adjusted their 2025 growth outlook to 2.5%, down from a previously robust 3.4% in 2024.
Outlook: slower but stable growth
The figures depict an economy adjusting to monetary tightening, with consumption and investments slowing. Economists suggest the Brazilian economy remains resilient yet sluggish, opening possibilities for monetary easing by the end of 2025. However, inflation trends and domestic demand will determine the pace of such changes.
Meanwhile, the Finance Ministry remains cautiously optimistic, highlighting the delicate balance required. The challenge is maintaining momentum in Latin America’s largest economy while ensuring inflation is controlled, following a notable rate-hiking period.
For further insights, you may visit Invezz, where this piece originally appeared under the title “Brazil’s economy slows in Q2 but beats forecasts as services, mining shines”.
