Brazil’s economy expanded 0.5% in the second quarter, outpacing the Reuters consensus of 0.4%, driven by gains in agriculture. The data, released by the national statistics agency on Tuesday, underscored persistent headwinds from restrictive monetary policy and elevated household debt.
Analysts at Genial Investimentos lowered their third-quarter growth forecast to 0.2% from 0.3% and trimmed their fourth-quarter estimate to 0.3% from 0.4%. The full-year 2026 projection was reduced to 1.8% from 1.9%. MAG Investimentos applied a downward bias, projecting a 0.1% increase in Q3 and no growth in Q4. PicPay maintained its 2026 growth outlook at 1.7% but warned risks are skewed toward a sharper slowdown.
Credit conditions remain a drag on activity. The central bank reported that outstanding credit rose just 0.3% in July, while the default rate climbed to a record 6.4% of total loans. The benchmark Selic rate stands at 14%, as inflation and inflation expectations remain above target.
Central bank officials indicated additional measures are under review to curb indebtedness, with Ailton Aquino, director of supervision, noting relevant steps are expected in coming months to address higher-cost credit segments. Economists highlighted the drag from restrictive credit conditions and monetary policy on consumption-linked components of GDP.
Political uncertainty ahead of the October presidential election adds to the downside risks. Yihao Lin of Genial Investimentos said the election outcome could influence currency dynamics and the central bank’s room to cut rates, while Matheus Pizzani of PicPay cited adverse global conditions, domestic monetary tightening, and potential El Niño-related disruptions to agricultural output and food inflation as key headwinds.
