Brazil’s economy is thriving now, but a tepid global economy may hinder its growth

For Brazil, real GDP was flat in the second half of 2023, registering a rounded 0.0% growth in both quarters. Real GDP in the fourth quarter was still up 2.2% from a year earlier. Strong agricultural output at the beginning of the year allowed for an export surge, which supported economic output for the full year. By the end of the year, however, that support faded. Private consumer spending fell slightly in the fourth quarter, while exports grew by just 0.2%. Government spending grew by 0.9% in that quarter, and gross fixed capital formation—a measure of investment—grew for the first time since the third quarter of 2022. Looking ahead though, Brazil’s economy will likely grow. Banco Central do Brasil (BCB), the country’s central bank, has been reducing interest rates, which should support the recovery ahead. At the same time, the labor market remains tight, which has allowed for relatively strong wage growth that is expected to usher in higher consumer spending. However, exports likely weighed on growth for the first quarter of this year, and a relatively tepid global economy may prevent exports from adding much to growth soon. Fortunately, the drag from the agricultural sector is expected to diminish this year, which would put a floor under export levels. In addition, should the federal government miss its fiscal targets, higher taxes or lower federal spending may need to be implemented