Easy does it
Brazil’s GDP grew 0.1% in the third quarter, slightly below median forecasts (0.2%). While household consumption also increased 0.1%, both government consumption (1.3%) and investment (0.9%) performed better, resulting in a 0.4% increase in domestic demand—which accelerated compared to the second quarter.
From a supply perspective, the biggest surprise came from agriculture, which grew 0.4% versus a median projection of a 1.8% drop. Industrial GDP also surprised to the upside (0.8% vs. 0.3%), largely reflecting gains in mining and construction. On the other hand, services GDP came in weaker than expected, at 0.1% versus 0.4%.
Overall, the data points to an economic slowdown. Twelve-month GDP growth, which had reached 3.6% in Q1, now stands at 2.7% in the four quarters ending in September 2025, and should continue slowing in both 2025 and 2026. For this year, we expect growth of around 2.3%.
This slowdown mainly reflects weakening domestic demand: after ending last year growing at 4.8%, it now shows a 2.6% increase in the twelve months through September. At Q3-2025 prices, domestic demand grew nearly R$ 570 billion in 2024 (above the GDP increase of R$ 410 billion) but fell to just over R$ 190 billion more recently, while GDP expanded R$ 226 billion.
This should lead the Central Bank to further reduce its estimate of the output gap, which stood at 0.5% in Q3 2025, despite its economic growth projection at the time pointing to 2.0%.
Our view remains more critical. We believe the economy’s potential growth is lower than what the Central Bank assumes.
On one hand, productivity growth remains very weak. Output per employed worker increased only 0.5% compared with the same period last year. On a 12-month moving average, productivity growth fell from 1.9% at the end of 2023 to 0.6% at the end of last year, and 0.5% in the 12 months through September. Meanwhile, nominal wage growth remains above 9% per year, driving a sharp increase in unit labor costs.
On the other hand, investment remains low. Despite a modest rise in the investment rate, from 16.4% of GDP at the end of 2023 to 17.1% in the 12 months through September, it remains far below the 21% of GDP observed during Brazil’s strongest growth period, from 2007 to 2013.
We also note that the savings rate remains very low, around 14.5% of GDP (versus 18.2% on average between 2007 and 2013). The result is an external deficit of about 3.3% of GDP, meaning investment growth is limited by external financing constraints as well.
In any case, the signals of slowing activity, evident in the national accounts, are consistent with what the Central Bank has been communicating. We therefore see a meaningful likelihood that the Central Bank will begin cutting the Selic rate in early 2026.
We expect it to happen at the first meeting of 2026.
Now read on...
Register to sample a report