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BRAZIL ECONOMICS - Report 21 Sep 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The most recent activity indicators confirm the persistence of the slowdown that began in the second quarter. The intensity of this movement is surprising given the volume of stimulus to activity in an election year. The new measures effectiveness loss is partly explained by the accumulation of stimuli itself over the years. Pressure on interest rates and the deterioration of the financial conditions of households and companies reduce the transmission capacity of credit programs. This scenario is already clear among households and is beginning to appear more clearly among companies. In view of Lula’s worsening performance in the polls, the government has begun to resort to new fiscal measures, but the effects on activity should remain limited and there is a high risk of a sharper slowdown due to high indebtedness in the private sector.

In July IBC-Br (-0.22%), BCB’s monthly GDP proxy, posted a contraction across all sectors (chart 1), and the slowdown in activity indicated by GDP performance in the second quarter (0.5%) continues into the third. The pace of this slowdown contrasts with the volume of stimulus used to boost activity this year, largely through the credit market. The strategy of accelerating growth through demand, in the opposite direction of monetary policy, delivered results in the first years of the Lula administration, but has been losing its mojo and revealing its adverse consequences over the medium and long term.

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