The hand that rocks the cradle

BRAZIL ECONOMICS - Report 07 Jul 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The release of Q1 GDP revealed certain imbalances in the economy. On the supply side, GDP was driven by the strong performance of the agricultural sector, which grew over 12% in seasonally adjusted terms and 10% compared to the same quarter in 2024. Meanwhile, industrial GDP shrank slightly by 0.1%, and services GDP grew a modest 0.3%, both in line with the fourth quarter of last year.

The performance of these sectors, more closely tied to the cyclical dynamics of the economy, might suggest weakness in domestic demand. However, the data showed household consumption expanding by 1%, while gross fixed capital formation grew by over 3%. Combined with government consumption, domestic demand rose by 1.2%, recovering from the weak performance at the end of 2024.

The strength of domestic demand is surprising given the evolution of monetary policy. Throughout the interest rate easing cycle, from August 2023 to May 2024, the Central Bank consistently assessed that interest rates remained in contractionary territory. Since September of last year, the Selic rate has increased by 4.5 percentage points, while the one-year real interest rate (measured by the 360-day swap deflated by 12-month-ahead inflation expectations) recorded a similar increase between Q1 2024 and Q2 2025, which would suggest an even more contractionary monetary stance. Despite this, domestic demand remains robust.

Now read on...

Register to sample a report

Register
Sign-in
Forgot your password?
Copyright 2025 GlobalSource Partners. All rights reserved. This report is prepared for GlobalSource Partners’ clients and may not be redistributed, reproduced, stored in a retrieval system, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of GlobalSource Partners. This report is distributed simultaneously to our website and other portals used by GlobalSource Partners. The information herein was obtained from various sources and is believed to be reliable but GlobalSource Partners does not warrant its completeness or accuracy. Neither GlobalSource Partners nor any Country Analyst, officer or employee accepts any liability whatsoever for any direct, indirect or consequential damages or losses rising from any use of this report or its contents.