Brazil's 2024 GDP outlook improves slightly

Brazil's economy is projected to grow faster than previously expected this year, and potentially negative effects of monetary tightening are likely to be mitigated by a solid agricultural sector next year.

The finance ministry increased its 2024 GDP growth forecast to 3.3% from the previous estimate of 3.2% due to a better-than-expected performance in the services sector and a less severe contraction in the agricultural segment.

Next year’s estimate was maintained at 2.5%.

“Despite the expected increase in the benchmark interest rate in the coming months, the expectations for the grain harvest and extractive production in 2025 have significantly improved, offsetting the negative effect of the more contractionary monetary policy on activity,” the finance ministry said in a statement.

The agricultural sector's growth in 2025 will be partially mitigated by an anticipated slowdown in industry and services, it added.

Despite the improved outlook, the administration of President Luiz Inácio Lula da Silva is struggling with falling approval ratings.

"There is significant difficulty for the Brazilian government in capturing the improvement in economic projections and translating this into better approval ratings for Lula's administration because higher inflation has a quicker and more direct impact on people's sentiments than GDP improvements," Lucas Fernandes, a political analyst at local consulting firm BMJ Consultores, told BNamericas. 

"This effect was very noticeable in the United States elections this year and is being repeated here in Brazil," added Fernandes.

The central bank started hiking the Selic policy rate in September, when it was 10.50%, and raised it twice, to 11.25% currently. The monetary authority also signaled that more hikes are on the horizon due to inflationary pressure.

Meanwhile, the finance ministry increased its inflation estimate for this year to 4.40% from 4.25%, which is still below the central bank’s upper limit of 4.50%.

Next year, the ministry expects 3.60%, up from 3.40% previously estimated.