What happened to Brazil’s economy in 2024

A Brazilian economy in 2024 was marked by a growth greater than expected and unemployment at historic lows, in addition to spending containment measures that did not encourage the market and growing distrust with fiscal policy, which reflected in the strong ddevaluation of the real.

What is certain is that the Brazilian economy This year has gone through ups and downs and promises other important episodes next year.

“More than anything else, 2024 marks a process of non-trivial geopolitical change that will have new chapters of this miniseries in 2025,” said Armando Castelar, associate researcher at the Brazilian Institute of Economics at Fundação Getulio Vargas (Ibre/FGV).

According to the expert, at the beginning of the year a Gross Domestic Product (GDP) lower, but the numbers were revised upwards with the surprise of the strength of domestic demand and the increase in family consumption, as credit expanded and a resilient job market.

On the other hand, it was also a year with inflation pressured above the Central Bank’s (BC) target ceiling, forcing the resumption of the increase in the interest rate hike cycle, with Selic ending 2024 in double digits.

“It is a very big concern, because the year ends with a very strong perception of domestic risk”, points out Castelar.

GDP surprises

according to the Brazilian Institute of Geography and Statistics (IBGE)and positively surprised initial market estimates.

The result was driven by increases in the services and industry sectors.

In the year to date, GDP grew 3.3% compared to the same period in 2023.

The increase in GDP was periodically revised by the market, which in January pointed to an increase of 1.59%, according to the Focus BulletinBC’s weekly publication with analysts’ expectations.

In the last edition, this Monday (23), estimates increased to 3.49%.

This growth is close to the number estimated by .

Chief economist at MB Associados and researcher at the Institute of Advanced Studies at USP, Sergio Vale, highlighted CNN Money that economic growth was the big positive point of 2024.

“We were expecting 2% at the beginning of the year, in some cases we even had a slightly more negative view, suddenly there is growth that will be around 3.5%”, he said.

But, for 2025, the assessment of the Minister of Finance, Fernando Haddadis that the monetary policy more contractist of the BC should cause a quick response to the economy.

With that, the .

According to the authority, the estimate is that the Brazilian economy should grow 2.1% in 2025.

However, the positive movement in economic growth this year raises some concerns regarding inflationary dynamics.

This was the assessment of Andréa Angelo, inflation strategist at Warren Investimentos, which she explained in an interview with CNN Money that family consumption, combined with a job market that should remain strong in 2025, could put pressure on prices.

“The Central Bank will not see the economy’s idleness”, said Angelo, indicating that this could lead to adjustments in the BC’s projection model and, consequently, to a higher Selic rate — as seen in the latest decision by the Monetary Policy Committee (Copom).

Hot job market

O job market It was also a positive highlight on the country’s economic agenda in 2024, with unemployment falling to historic levels.

— the latest numbers. According to the Brazilian Institute of Geography and Statistics (IBGE), there are 6.8 million unemployed people.

This is the lowest level for the period ending in November since the beginning of the historical series of Continuous National Household Sample Survey (Pnad Contínua)em 2012.

– the number of active links. In November this year, the country reached a stock of 47.7 million, an increase of 3.9% compared to the same month last year.

— a scenario that occurs due to the heating of the job market, according to Denise Guichard, an analyst at IBGE.

Inflation above target and interest rates in 2 digits

The heating up of the economy and pressure in the job market gave impetus to inflation, which is expected to end the year above the ceiling of the target pursued by the BC.

The Broad National Consumer Price Index-15 (IPCA-15) increased by 0.34% in December, and closed the year 2024 with an accumulated variation of 4.71%, according to IBGE data published Friday.

Even so, the government’s projection for inflation is more optimistic than the financial market’s estimate. Data from Focus showed that the market expects an increase of 4.91% this year.

In short, 2024 was marked by an increase in interest rates in recent months, remaining at double-digit levels.

The rate began the year falling from 11.75% in January to 10.50% per year in May. After that, it remained in the same range until September, when the increases in the Selic rate returned again.

The advance has been maintained in all meetings since then, and the Selic will end 2024 at 12.25%.

New increases are already contracted for next year, with the market seeing interest rates peaking at 14.75%.

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Measures to contain costs and fiscal risk

But it’s not just inflation that worries the Central Bank. The rise in the dollar and agents’ perception of the fiscal scenario They were also present in the collegiate’s decision-making and were frequent topics in recent weeks, as the administration of public finances has also worried the market.

An important milestone of the year was the release of the long-awaited .

The tax measures were released alongside plans to increase the tax limit exemption from Income Tax (IR) for a salary of up to R$5,000 and this ended up generating noise in the market.

Furthermore, projects that make up the package were recently approved by the National Congress. However, the Ministry of Finance estimates a . The initial prediction was that fiscal measures would have the capacity to save R$71.9 billion in two years.

The assessment of this year’s fiscal scenario is negative by the rating agency Fitch Ratings. .

However, the background to this situation appears in the first year of the president’s government Luiz Inácio Lula da Silva (PT)letting the deficit widen in his first year to accommodate higher social spending, and aiming for consolidation in the remainder of his term through efforts to raise revenues, according to Fitch.

Armando Castelar, from Ibre/FGV, also explains that, generally, in the first year of government, spending is held back a little, trying to create some slack closer to the elections.

“The Lula government was different. Even before taking office there was a very strong increase in spending and it reached the end of the second year in a very complicated fiscal situation”, said Castelar.

To this extent, the National Treasury announced on Thursday (26) in its monthly report that the Federal Public Debt (DPF).

For the year, the Treasury projects a gross public debt of 77.7% of GDP.

For Vale, from MB Associados, the government insists on attributing the market’s negative reactions to communication failures, ignoring deeper fiscal problems.

The economist highlighted that the economic package presented by the government falls far short of what is necessary to stabilize the public debt.

Vale explained that, for 2025, a primary surplus of around 3.5% of GDP would be needed to bring debt stability, while current projections point to a deficit of between 0.5% and 1% of GDP.

“We are very far from what is needed. This is not the time and it is not the time for the government to say that there was a failure in understanding, in communication, the plan is great, you didn’t understand. It’s not like that”, he emphasized.

Dollar rise and BC interventions

This year Brazil also went through a strong devaluation do real in relation to the dollar. The US currency reached historic highs in November.

Pressure on the exchange rate intensified at the end of November, after the joint presentation by the federal government of the spending cut package with IR exemption.

Since then, the exchange rate has climbed to levels not seen since the creation of the Plano Realin 1994, , amidst the procedures for the approval of projects that are part of the fiscal package by the Congress.

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In the December partial, the jump is 3.18%, while since the beginning of the year the devaluation has approached 30%.

With this scenario, the Banco Central carried out several interventions in the last months of the year.

According to Inter, there were US$30 billion in auctions, US$19 billion in cash and US$11 billion online — when there is a repurchase commitment.

Despite the BC’s actions, the bank argues that containing the rise in the dollar must come from initiatives that bring more confidence to the market about the federal government’s commitment to containing spending.

“The main intervention in the exchange rate will be a credible fiscal adjustment”, .

Inter also highlighted that Brazil has a exchange reserve of US$363 billion, while the public sector’s external debt is US$136 billion.

“In other words, from a solvency point of view, the exchange rate position is comfortable in relation to other emerging countries, and considered by rating agencies as one of the positive points in the assessment of sovereign risk”, highlighted the entity.

The report also draws attention to the interest differential between Brazil and the United States. While here the Selic is rising, with the potential to reach 15%, in the USA the situation is opposite, with rate cuts expected.

Mercosur-EU Agreement

The historic free trade agreement between Mercosur e European Union (EU) was announced in early December, after 25 years of negotiation.

Several benefits may arise from this milestone, including for Brazil, such as in , in addition to , such as olive oil, wine, cheese and imported cars.

With this overview, it is clear that the year ends with a lot of excitement, different from the calm expected with the end of year festivities, in Armando Castelar’s opinion.

“It has been a very busy period, which promises that 2025 will start no less busy”, said the expert.