Valor International / Economy

Brazil’s Economic Outlook

Brazil’s Central Bank has lowered its projection for the country’s GDP in 2025 and confirmed a slowdown for 2026. Despite this, the bank emphasizes the strength of employment, income, and the resilience of economic activity. The revision in GDP projection is due to various factors, including the effects of U.S. tariff increases, which are still uncertain.

Revised GDP Projections

The Central Bank changed its 2025 GDP projection to 2% from 2.1% and presented its first forecast for 2026 at 1.5%. The bank also increased its external account deficit forecast for 2025 to $70 billion from $58 billion, citing a more pressured and adverse scenario. In 2026, the deficit would return to $58 billion. The larger negative result this year is associated with worse expectations for services and income accounts, plus a smaller trade balance.

Factors Affecting GDP

The reduction in the 2025 GDP projection stems from factors such as the effects of U.S. tariff increases. However, bearish factors for 2025 GDP were partially offset by better forecasts in agriculture and extractive industry. On the supply side, there was an increase in the agriculture forecast, a reduction in industry, and stability in services. On the demand side, projections were reduced for household spending and government spending, while Gross Fixed Capital Formation (GFCF) was raised due to oil rig imports.

Labor Market Resilience

The labor market remains resilient, with the Central Bank dedicating four special studies to analyze employment in Brazil. The studies show that worker mobility is elevated, with historically high levels of job turnover and rotation rates, and the historically quick job search time. Additionally, the "wage premium" for job changes is elevated, and platform work represents a structural change in the labor market.

Employment Trends

The Central Bank’s studies also analyzed how the growth of app-based workers resulted in higher employment levels, participation rates, and reduced unemployment. Furthermore, the bank evaluated the impact of demographic changes on the labor market, finding that the aggregate participation rate would be lower and the employment level would be lower if the working-age population structure had remained constant since 2014.

Conclusion

In conclusion, Brazil’s economic outlook has been revised, with a lower GDP projection for 2025 and a slowdown confirmed for 2026. Despite this, the labor market remains resilient, with strong employment, income, and economic activity. The Central Bank’s studies provide valuable insights into the labor market, highlighting the importance of worker mobility, platform work, and demographic changes. Overall, Brazil’s economy is expected to continue growing, albeit at a slower pace, with the labor market playing a crucial role in driving economic activity.