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BRAZIL ECONOMICS - Report 16 Mar 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Although we expect a monetary easing cycle in 2026, the economic slowdown that became evident in the second half of last year is still likely to manifest itself this year. In particular, economic growth should decelerate relative to 2025, although the nature of the deceleration will be somewhat different.

In fact, the expansion observed last year masks, to some extent, the slowdown degree. Even though GDP increased 2.3% in 2025 compared with 3.4% in 2024, the strong performance of sectors that are relatively unaffected by the cyclical dynamics of the economy—agriculture and the extractive industry, which grew 11.7% and 8.6%, respectively—ended up sustaining the overall result for the year. Growth in the remaining sectors, which had reached 3.9% in 2024, fell to a modest 1.6% in 2025.

This, however, was not reflected in the labor market. The unemployment rate declined throughout last year, reaching 5.3% in December, the same level observed in January 2026 and the lowest in the historical series. Such a development suggests that the country’s potential growth rate—that is, the rate associated with no change in economic slack—is low. Indeed, a decomposition of GDP growth over the past two years indicates that the expansion resulted mainly from higher employment, or, equivalently, from the decline in the unemployment rate. However, it is not possible to reduce the unemployment rate indefinitely. Sustained economic growth depends on the increase in the working-age population—that is, on population growth and the demographic dividend (the increase in the share of people of working age in the total population) —as well as on productivity growth.

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