Brazil’s economy is likely to exhibit strong indications of weakening when the second-quarter Gross Domestic Product (GDP) data is revealed on Tuesday.
According to local media outlet InfoMoney, economists and financial institutions expect a major slowdown from earlier this year, as high domestic interest rates and global uncertainty about Donald Trump’s retaliatory tariffs begin to weigh on activity.
According to ASA Investimentos and Banco Pine, GDP is expected to grow by 0.3% quarterly and 2.1% year on year, following a 1.4% gain in the first quarter.
Banco Daycoval has significantly higher expectations, projecting 0.5% growth for the quarter and 2.4% for the year.
“All economic growth in 2025 is likely to be concentrated in the first half of the year, given the prolonged impact of restrictive financial conditions and a more uncertain global environment on domestic activity,” stated Banco Pine’s director of macroeconomic research, Cristiano Oliveira.
Sectoral pressures: agriculture slows, industry underperforms
Agriculture, which drove Q1 growth on the back of the bumper 2025 harvest, is seen losing steam in the second quarter due to seasonal factors.
According to the ASA economist Leonardo Costa, “the situation suggests that the economy has entered a more moderate growth trajectory after the initial harvest boost.”
Banco Pine estimates agriculture contracted 1.7% following a robust 12.2% surge in the previous quarter.
The economic research team at Daycoval also points to good results for the sector, but at “decelerating” speeds.
Industry has been particularly sluggish. Industrial production climbed a mere 0.1% in June relative to May and dropped 1.3% year-on-year, well below projections of 0.4% m/m growth, and 0.6% y/y, according to IBGE data. It all adds up to what Costa said is a slowdown already in progress.
Daycoval’s report also warns of downside risks in the manufacturing and retail sectors, where weaker household demand could emerge.
However, there is still some upward potential, particularly in the automobile industry, transportation, and logistics, which may gain indirectly from the agricultural harvest.
Demand dynamics: investment retreats
On the demand side, investment is emerging as a significant weakness. Banco Pine expects gross fixed capital formation to fall 2.3% in the quarter, marking the first dip in six consecutive quarters of expansion.
Oliveira ascribed this to rising real interest rates and increased global uncertainty, both of which slowed business spending.
Household consumption and government spending, on the other hand, are expected to grow at a modest 0.3% rate, particularly in credit-sensitive categories.
External accounts are likely to provide a minor boost, with imports falling 1.8% and exports rising 0.7%, according to Pine’s forecasts.
Leading indicators signal a moderate trajectory
Weak production figures, dropping service volumes, and softening confidence indexes all point to Brazil’s economy going in a more moderate direction, according to Oliveira.
According to Pine’s calculations, assuming second-quarter forecasts are accurate, the statistical carryover for the rest of 2025 will be 2.4%.
Looking ahead, Pine predicts GDP growth of only 0.1% in the third quarter, as the tight monetary policy continues to close the production gap.
“Most simulations show that between Q3 and Q4 of 2026, the gap will be close to neutrality without causing a severe contraction in the Brazilian economy,” according to research from Pine.
Policy outlook: eyes on Copom
Despite the predicted cooling, the progressive closing of the output gap and lower inflation expectations may pave the way for monetary policy respite.
Daycoval predicts that the Monetary Policy Committee (Copom) would begin reducing interest rates in the fourth quarter of 2025, perhaps supporting GDP into 2026.
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