The consequences come afterwards

BRAZIL ECONOMICS - Report 03 Sep 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

GDP grew 0.4% in the second quarter, slightly above average forecasts, 0.3%, but on top of a revised expansion in the first quarter, from 1.4% to 1.3%, that is, broadly in line. Compared to the same period last year, growth reached 2.2%, accumulating 2.5% in the first half of the year and 3.2% over the last four quarters. The statistical carry-over for 2025 therefore reaches 2.4%.

From the supply perspective, expansion resulted mainly from the performance of the services sector, with some emphasis on financial services, while growth in industrial GDP reflects the strength of the mining sector, the only industrial branch with a positive performance. Agriculture, after the extraordinary performance in the first quarter, declined slightly but remains the most dynamic sector of the economy, particularly in terms of the persistent increase in productivity.

Even with the slowdown in economic activity, our output gap estimates continue to point in the opposite direction of the Central Bank’s projections and are in line with the decline in the unemployment rate. This suggests that the pace of potential output growth is quite low. If we are correct, the trajectory expected by the Central Bank of a reduction in the output gap will not materialize, or at least not at the anticipated speed, which suggests slower disinflation over the monetary policy horizon.

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