Real contagion for the worsening of financial conditions has been a central theme in the concerns of various agents. The weaker recent data in the industry, retail, services and trust and have no warning.
Worse financial conditions express the rise of reais and dollar and the drop in shares and commodities and exert contractionist pressure on economic activity. In Brazil, these conditions have been tight since mid -2022 and have worsened in the last quarter of last year, reaching even more deteriorated level than observed in.
Nevertheless, some factors should act as attenuating. The slowdown over 2025 tends to be gradual, with more prominent impacts on 2026.
Growth between 1.5% and 2% in 2025, with low market surprises in market projections, is the most likely, which represents an important slowdown in relation to the postpandeia period, whose average expansion was above 3% per year.
The first support element for this result is agricultural production, which should benefit from another year of record volume in grain crop and high of 10% or more in agro production. The sector, once again, tends to generate not only the direct impact on the but also side effects via agro -industry and services (transport, storage).
Other components – although with a front slowdown in front – tend to benefit from favorable cyclical conditions at the beginning of the year. It follows the rate of close to the historical minimums, with the continuity of the recent trend of real salary gains (4% in the year) and the resilience of the voluntary shutdown rate at historical maximums.
Both are signs of labor market heating. This behavior tends to be a factor in supporting demand in the short term through the consumption of families, one of the highlights in the growth of recent years. Usually, the job market is one of the last variables to respond to cycle reversals, which reinforces this short -term resilience view.
A support factor is the calendar of government transfer in the first half, with concentration of the payment of precatory, anticipation of the 13th of retirees and pensioners.
On the supply side, the lack of idle capacity may contain the expansion of some activities, and cyclic investments are always the most sensitive to high interest rates. However, exporting sectors (benefited by increased production and depreciated exchange), with regulatory commitments or longer investment cycle, still tend to have breath over the coming months. The examples are civil construction, oil and gas (with strong governmental action) and regulated sectors of infrastructure, even though the negative impact of high interest rates will be more relevant from the coming years.
In credit, it is reasonable to expect deceleration of concessions due to the increase in the cost of catchment (interest) and the higher risk of default, which tends to be less impactful due to a more provisioned banking system. Doubts remain on impacts on the capital market in 2025.
Still, the difference between new concessions and payments (impulse for activity) should be neutral or close to GDP growth. Remembering that, last year, even under restrictive financial conditions, the credit impetus was 5% of GDP! Garanting subsidies and funds in micro and small business credit, in addition to efficiency gains in the financial industry, are examples of monetary policy transmission to credit.
The risks are accumulated from the second half and, above all, for 2026. At this point, the positive effects of the agricultural sector will have dissipated, as expansion tends to be concentrated on summer crops at the beginning of the year. The labor market should accentuate deceleration, with negative effects on demand, while seasonal tax stimuli are reduced.
Thus, the most intense effects of monetary squeeze and, above all, the interest shock began in December tend to be fully felt by economic activity in the middle of the year. While, on the one hand, the beginning of 2025 still has elements of growth sustaining, on the other the risks of the most pronounced slowdown would be in 2026.
However, it is worth remembering, the next year will have a permanent increase in income to about 20 million taxpayers, due to the proposal to increase the income tax exemption range to $ 5,000. It will also have the usual electoral spending, in the Union and in the states. In this regard, fiscal impulses may be accompanied by increased risk aversion in public debt financing, which will grow two digits above GDP at the end of the period 2023 to 2026.
In the context of economy still overheated and unannked expectations, we see a long way until this deceleration has sufficient impact for inflation to return to the goal, which reinforces the need to maintain contractionist policies longer. The social cost of inflation control is already being higher.
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