Economy slows down with high interest rates and revised GDP.

High interest rates are slowing GDP growth and affecting retail sales.

Brazil's Ministry of Finance has revised its 2025 GDP growth projection downwards, reducing it from 2.31% to 2.21%. The economic slowdown is mainly attributed to the impact of restrictive monetary policy, with the Selic rate maintained at 1.5% per year, which has restricted credit and slowed economic activity, especially in the third quarter.

Recent indicators reinforce a cautious outlook.

Data released by IBGE shows that retail sales fell 0.3% in September, contrary to expectations of a 0.3% increase. In the annual comparison, the advance was only 0.8%, below the projected 2%, indicating a slower pace of household consumption. Regionally, 15 states registered a drop in sales, with Maranhão (-2.2%) and Roraima (-2.0%) showing the worst results, while Tocantins (3.2%) and Amapá (2.9%) showed growth.

Inflation still above target and outlook for 2026

Despite the slowdown, inflation is expected to remain above the upper limit of the official target in 2025, with the IPCA projected at 3.61% for 2026, according to the Ministry of Finance. The government expects monetary policy to become less restrictive next year, which could facilitate access to credit and stimulate the economy. Inflation is expected to return to the target range from 2027 onwards.

Financial market and external environment

In the Brazilian stock market, the Ibovespa closed with a slight drop of 0.07%, at 157,633 points, after a series of record highs, while the dollar rose 0.10%, quoted at R$ 5.2975. The market is also monitoring the end of the shutdown in the United States and the diplomatic negotiations between Brazil and the US, which are influencing investor sentiment.

Practical impacts

• High interest rates are expected to keep economic growth subdued in the short term.
• Household consumption and retail sales are showing signs of weakening.
• Regional sectors exhibit uneven performance, reflecting local challenges.
• Expectations are high for improvement in 2026 with a possible reduction in interest rates.

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