Brazil recession: could fiscal policy tip the economy into a downturn?
Brazil’s economy has alternated between periods of expansion and slowdown, each shaped by changes in policy, global demand and investor confidence. After avoiding a recession in recent years, it now faces renewed headwinds — elevated interest rates, fiscal constraints and uneven sectoral growth.
Brazil avoided a recession in 2023 and 2024, with full-year GDP up 2.9% in 2023. However, growth has slowed through late 2025 amid high interest rates and fiscal uncertainty. The government’s current fiscal framework targets a zero primary deficit in 2025, while the central bank continues to hold the Selic policy rate at 15% to keep inflation in check.
What is a recession?
A recession is a sustained decline in overall economic activity. Many observers use the 'technical recession' definition – two consecutive quarters of negative real GDP growth. Policymakers also consider other measures, including unemployment, industrial output, real incomes and retail sales, to gauge the extent of a downturn. The IMF notes that globally synchronised recessions often coincide with US downturns, reflecting the size of the US economy in global trade and finance.
Brazil’s recession history
Brazil has experienced several downturns since 2000:
- 2008–2009: Output contracted during the global financial crisis before recovering as external demand stabilised.
- 2015–2016: A deep, domestically driven recession followed a build-up of fiscal imbalances and falling commodity prices.
- 2020: The economy entered a technical recession during the COVID-19 shock.
- 2023–2024: No technical recession; GDP grew 2.9% in 2023, led by agriculture, though momentum slowed into 2024–2025 as tighter financial conditions curbed demand.
Is Brazil in a recession right now?
As of 24 November 2025, Brazil is not in recession. Official data show the economy expanded in 2023, and most forecasts point to growth of about 2.0–2.2% in 2025, down from earlier estimates. Inflation has eased to around 4.6–4.7% year-on-year (October 2025), still above the upper end of the target band. The central bank has maintained the Selic policy rate at 15% to anchor expectations.
Consumer sentiment has improved from mid-year lows, with FGV’s index rising to 88.5 in October (a 10-month high), though it remains below the neutral 100 mark. Growth is broad-based across agriculture, industry and services, but activity has slowed in line with tighter credit conditions.
Source: Reuters, 13 November 2025.
Brazil’s political backdrop and fiscal stance
In early 2023, Brazilian assets fell sharply on concerns over new spending plans and the possible removal of the constitutional spending cap. Congress later approved a new fiscal framework, replacing the cap with rules linking spending growth to revenue and establishing primary-balance targets.
While markets stabilised after the initial shock, volatility persisted in 2024–2025 as investors assessed high interest rates, fiscal delivery, and global headwinds. The real and Ibovespa have alternated between periods of strength and weakness as expectations shifted.
Fiscal stance in 2025. The government’s framework sets a 2025 primary-balance target of 0.0% of GDP (with a tolerance band) and envisages a small surplus in 2026, though officials have adjusted spending curbs during the year as revenue assumptions changed. Execution risk remains a live market focus.
Source: Reuters, 22 July 2025.
Brazil economic forecast: outlook for 2025–2026
- Growth: The Finance Ministry revised its 2025 GDP growth projection to 2.2%, citing softer activity into year-end. Independent estimates and central bank surveys cluster around 2.0% in 2025 and 1.5% in 2026, assuming high interest rates persist into early 2026 before easing.
- Inflation and monetary policy: IPCA inflation at 4.6–4.7% (October 2025) has moderated from 2024 peaks but remains above target. The central bank has held the Selic rate at 15%, signalling a prolonged pause to consolidate disinflation. Rate cuts appear unlikely before 2026 unless inflation slows more than expected.
- Fiscal policy: The 2023 fiscal framework focuses on raising revenue rather than cutting expenditure, aiming for a zero primary balance in 2025 and a modest surplus in 2026. Analysts note that the rule’s long-term credibility may depend on structural spending reforms.
- Domestic demand and external factors: Consumption and services have softened under tighter credit, while investment remains sensitive to policy signals. Net exports continue to depend on commodity prices and global demand. Consumer confidence has edged up from early-2025 lows but is still below historical averages.
Key takeaways
Forecasts can change and shouldn’t replace independent research. Review the latest data from the IBGE (national accounts, inflation), Banco Central do Brasil (Selic decisions, inflation reports) and the Ministry of Finance (fiscal targets), and consult a range of credible sources.
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FAQ
Is Brazil in a recession?
As of November 2025, Brazil is not in a recession, although the economy has continued to slow. Official data show GDP growth of around 2.2% expected for 2025, following 2.9% growth in 2023. Economic activity remains positive but subdued, weighed down by high interest rates (Selic at 15%), softer domestic demand and fiscal uncertainty. Analysts generally expect Brazil to avoid a technical recession in 2025, though many highlight an increased risk of contraction in 2026 if tight monetary policy persists and fiscal adjustments weaken.
Will Brazil’s economy recover?
Most forecasts point to slow but steady growth over the next 12–18 months. The Finance Ministry and Banco Central do Brasil project output to expand by about 2% in 2025 and 1.5% in 2026. Gradual disinflation, measured monetary easing, and credible fiscal management could support a soft landing. However, Brazil’s recovery will depend on how quickly inflation moderates, the timing of potential rate cuts in 2026, and the government’s ability to sustain fiscal discipline under President Lula’s framework.
How long does a recession usually last?
Recessions typically last between six months and two years, depending on their causes and the effectiveness of policy responses. In Brazil, the last major recession in 2015–2016 persisted for over two years, reflecting fiscal imbalances and weak commodity prices. The COVID-19 downturn in 2020 lasted several quarters but was followed by a faster rebound. If a new downturn were to occur in 2026, its duration would likely depend on the pace of monetary easing and the restoration of fiscal credibility, both key to reviving domestic investment and confidence.
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