• Key policy rate: 14.25% (March 2025)
• 2024 GDP growth: 3.4%
• 2025 GDP growth target: 2.3%
• Manufacturing Purchasing Managers’ Index reading: 51.8 (March 2025)
• Inflation rate: 5.48% (March 2025) 

Brazil, the largest economy in South America, has seen four straight years of economic slowdown. Slowing growth is likely to persist under President Luiz Inácio Lula da Silva as he sets sights on a balanced budget for Brazil, which requires a sustained increase in state revenue collections accompanied by public spending cuts. The latter sounds challenging, especially with the country’s high social spending requirements.

Household consumption mainly drives economic activity, accounting for 68 per cent. This is followed by private investments as well as government expenditures, both accounting for less than a fifth of domestic output. On global trade, Brazil has been a net exporter in recent years, with the US being its second biggest trading partner next to China.

By activity, Brazil’s economy is primarily services-driven at 60 per cent, followed by industry (17.7 per cent) and agriculture (7 per cent). The country’s major export products are soybeans and petroleum oils.

The Banco Central do Brasil (BCB) is a deviant central bank: it remains on the path for rate hikes to reel inflation closer to its 3 per cent target after averaging 4.83 per cent in 2024. Further, it has been contending with political pressure from Lula to cut interest rates and support faster economic expansion. New BCB Governor Gabriel Galípolo, however, has vowed to keep monetary policy independent. Currently, the Selic rate enjoys a sizeable interest rate differential relative to the US federal funds rate, boosting the attractiveness of Brazil as an investment destination.

House view: Brazil is one of the bright spots among emerging markets. Its relatively large exposure to the US is likely to affect domestic inflation through prices of traded goods and the exchange rate, but Lundgreen’s view the rate differential and undervalued assets as an opportunity for investors to realize good gains. The Brazilian economy also offers sustainable investments such as green bonds to support the preservation of the Amazon rainforest, which we view positively.

Updated as of 22 April 2025