Brazil’s economy is expected to grow by just over 2% in 2025, according to the median of market estimates studied weekly by the central bank. For the Ministry of Finance, the increase in Gross Domestic Product will be 2.2%; for British Columbia itself, 2.3%.
In this way, the figures are close to each other and also to the expectations of analysts collected at the beginning of the year, of 2.01%. Thus, the series of positive surprises concerning GDP observed from 2022 to 2024 is interrupted, once the worst of the pandemic has been overcome.
Errors in business forecasts are not uncommon. Unforeseen events, economic, political or otherwise, often occur, such as weather events. Projection models are imperfect. Even if they were not precarious, the relationships between variables in the past do not account for innovations and structural changes.
It is more important to use the estimates to understand the influences that have not been accounted for.
Like Bráulio Borges, chronicler of this Leafthe increase in public spending has been underestimated, not only by the government of Luiz Inácio Lula da Silva (PT), but also by states and municipalities. The increase in spending initially encouraged an economy in depression since 2015, with great idleness of labor and capital.
The side effects of fiscal expansionism became visible in 2024, with signs of overheating and inflation. The discredit of fiscal policy, which has increased over the past year and also manifested itself in the exchange rate, has contributed to rising prices and interest rates.
There is evidence that changes in the world of work have prevented even higher inflation, even with low unemployment rates. The 2017 CLT reform made contracts more flexible and reduced recruitment costs; technological changes have occurred, influencing labor supply.
Capital market progress and banking competition made credit easier, which appears to have contained the effect of very high interest rates, leading to a slower slowdown in economic activity.
The most important exogenous factor of the year was the global devaluation of the dollar, a consequence of Donald Trump’s mistakes, which helped to contain domestic inflation. Agricultural success, moderation in world food and oil prices, and Chinese exports of cheap industrial goods were further mitigations of the famine.
Total public spending, although high, has increased less. As a result, the economy’s landing is smooth. In the short term, we observe a slow convergence of the IPCA towards the objective, without any shock to GDP.
However, the broader picture is one of growing public debt and low levels of investment, high and inefficient public spending combined with prohibitive interest rates for families and businesses. This is obviously not a recipe for sustainable growth.
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