The second quarter Gross Domestic Product data will likely show a significant decline in Brazil’s economic growth.
Local media InfoMoney reports that economists and financial organizations expect activity to slow down significantly from the start of this year due to high interest rates at home and uncertainty around Donald Trump’s tariff retaliation.
According to ASA Investimentos, and Banco Pine the GDP will grow 0.3% quarter-on-quarter and 2.1% on an annual basis, after a 1.4% increase in the first three months.
Banco Daycoval’s expectations are significantly higher, with a 0.5% quarter-on-quarter growth and 2.4% annual growth projected.
Cristiano Oliveira, Banco Pine director of macroeconomics research, said that all economic growth is expected to occur in the first six months of 2025, due to the impact of tighter financial conditions on the domestic economy and the uncertain global climate.
Agriculture slows down, while industry performs poorly
Seasonal factors are causing agriculture, which generated Q1’s growth, to lose steam.
Leonardo Costa is an economist at ASA. He says that “the current situation indicates that the economy’s growth has shifted to a moderate trajectory following the initial boost from the harvest.”
Banco Pine predicts that agriculture has contracted by 1.7% after a 12.2% increase in the prior quarter.
Daycoval’s economic research team also reports good results, though at a “decelerating speed”.
The industry has been especially sluggish. According to IBGE, industrial production rose by only 0.1% from May to June and fell 1.3% on a year-over-year basis. This is well below the projections for 0.4% growth m/m and 0.6% on y/y. Costa said that the slowdown is already underway.
Daycoval warns that the retail and manufacturing sectors could also be affected by a weakening of household demand.
There is some upside potential in certain industries, such as the automotive, transport, and logistic sectors, who may indirectly benefit from the harvest.
Investment retreats: Demand Dynamics
Investment is a major weakness on the demand side. Banco Pine anticipates that gross fixed capital will fall by 2.3% during the third quarter. This is the first decline in six quarters.
Oliveira attributes this to the rising real interest rate and global unrest, which both slowed down business spending.
The growth rate of household consumption and government expenditures is expected to be modest, at 0.3%, especially in the credit-sensitive areas.
According to Pine, the external accounts will likely provide a small boost. Imports are expected to fall by 1.8%, while exports rise 0.7%.
Leading indicators indicate a modest trajectory
Oliveira says that the economy of Brazil is moving in a moderate direction. Weak figures for production, a drop in service volume, and a softening index on confidence are all signs.
Pine calculated that, assuming the second quarter forecasts were accurate, statistical carryover will amount to 2.4% for the remainder of 2025.
Pine’s forecast for the third quarter is a GDP increase of just 0.1%, due to the tightening monetary policies that continue to reduce the gap in production.
According to Pine’s research, “Most simulations indicate that the Brazilian economy will not suffer a significant contraction between the third and fourth quarters of 2026 because the gap is close to zero.”
Copom: policy outlook
The closing of the gap in output and the lower expectations for inflation may allow a monetary policy relaxation despite the cooling predicted.
Daycoval believes that the Monetary Policy Committee will begin to reduce interest rates during the fourth quarter 2025. This could support the GDP until 2026.
As new information becomes available, the post Brazil Q2 GDP slows as global risks bite and high rates are seen as a concern may be updated.
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