Brazil began 2025 with another sign that growth should surprise analysts and the central bank itself. The challenge, however, is to maintain this trajectory. , the best performance since the early 2023. The growth bias for the year became clearly stupid, being between 2% and 2.5%.
The highlight was the record crop, which boosted the impressive 12.2%, the investment (3.1%) and the consumption of families, which advanced 1%, supported by the consistent improvement of and the increase in actual income.
Despite the favorable scenario, we expect cooling in the second half of the year. The accumulated effects of since September 2024 –4.25 percentage points of increase in the historically high level of real interest rate tend to reduce the pace of investments and hiring, cooling the service sector and a.
On the other hand, fiscal policy remains expansionary. In May, there was a retroactive payment of the increases granted to; In July and August, almost R $ 100 billion are expected to be expected, and there are social programs that are still running. The states, with robust boxes, accelerate works, aiming at the conclusion of mandates and the. And at the beginning of next year, there should be increased range of.
O, however, remains the main thermometer of the economic cycle. And there were, until recently, signs of gradual deceleration throughout the year. In the first quarter of 2025, the volume of new concessions and open balances significantly slowed down both individuals and legal entities.
In addition to the impact of monetary policy – credit is its main transmission channel – a regulatory change earlier this year contributed to this trend. The adoption of international standards, through new Central Bank rules, required more provisions and reclassification of problematic assets and reduced appetite to the risk of banks. There were also noise in the concessions.
At the same time, household indebtedness returned to grow (77.6% of available income), after the renegotiations promoted by the program, increasing the risk of default.
But the amazing April data in the labor market, coupled with the tax and parafiscal impulses already mentioned, require a reevaluation of this scenario.
In April, the labor market was again surprising: the unemployment rate fell to 6.1% (seasonally adjusted), a new historical minimum, while the formalization rate reached a 62% record. Aggregate income accelerated from 10% from the last quarter from 2024 to 13% from February to April.
With this robustness, credit also accelerated in April, contrary to our expectations. Credit to individuals grew, driven by changes in (with growth of 226.5% in new concessions compared to the previous year). There was also an increase in concessions for legal entities, especially in anticipation of receivables.
As a reflection of the dynamism in concessions, the growth of credit balances again gained breathtaking in April – surprisingly in a high interest rate, increasing default rates and raising bank provisions. These factors, in theory, should contain the expansion of aggregate credit.
New challenges arise in this reading. The recent credit operations, especially for companies, poses another risk for possible slowdown. In addition, the lagged effects of monetary policy remain.
It will not be trivial to decipher those resulting from all these mixed signs, arising from both monetary policy and government policies. But the biggest communication challenge will fall on the Central Bank.
The latest decision of, by reducing interest rates and keeping open the next steps open, emphasized the external scenario, marked by high uncertainty and risks of global slowdown. The misinflation of goods – favored by the fall of commodities and the weakness of the dollar – helped reduce this year’s inflationary pressures and should moderate inertia to 2026. But this process may have lost strength or much more limited from now on.
Technically, current growth components still indicate an overwhelmed economy, with increasing pressures on the scenario and the expectations of inflation. There is a mismatch between Central Bank projection models, market estimates and implicit rates of inflation on the interest curve.
The next steps of Copom promise to mark an important dilemma: between the reinforcement of credibility – that for reunioning expectations and increasing the effectiveness of monetary policy – and the interpretation of a scenario full of ambivalences.
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