Brazil: Economic activity contracts faster in July
Latest reading: Economic activity—a proxy for GDP—fell 0.5% on a seasonally adjusted month-on-month basis in July, following a downwardly revised 0.2% fall in the previous month. July’s contraction was the third consecutive one and sharper than markets had anticipated. The economy has started to show signs of cooling due to near two-decade-high interest rates.
Relative to the prior month’s data, readings in July worsened for the industrial sector (-1.1% seasonally adjusted month on month vs -0.2% in June) and the services sector—which accounts for roughly 60% of GDP (-0.2% vs 0.0% in June). In contrast, the reading for the agricultural sector improved in July (-0.8% vs -2.4% in June).
On a year-on-year basis, economic activity rose 1.1% in July, following a 1.3% rise in the prior month.
Outlook: July’s result bears out our Consensus’ view that sequential GDP growth will have slowed to a near halt in Q3, after decelerating to less than a third from Q1 in Q2—economic activity grew 0.2% quarter-on-quarter in Q2. For the remainder of 2025, our panelists see GDP growth stabilizing at Q3’s level in Q4, as the full impact of the Central Bank’s aggressive monetary policy tightening cycle trickles down to the economy.
Overall in 2025, GDP growth will undershoot 2024’s expansion and will decelerate further in 2026, when it should ease to its lowest since the pandemic-induced downturn in 2020. Decades-high interest rates, above-target inflation and elevated global uncertainty will outweigh continued wage growth and a robust labor market, dampening both private consumption and fixed investment.