Brazil’s Economy Grows 3.4% in 2024, Faces Slowdown in Q4

Brazil’s economy grew by 3.4% in 2024, the highest since the post-pandemic recovery, driven by investments and household consumption. However, growth slowed in the fourth quarter to just 0.2%, missing predictions. Economists expect GDP growth to decline to around 2% in 2025 due to tight monetary policy aimed at controlling inflation.

Brazil’s economy demonstrated a notable growth of 3.4% in 2024, marking its strongest performance since the recovery from the pandemic. This growth attribution, reported by the government’s statistics agency IBGE, surpassed market expectations and was bolstered by significant increases in investment and household consumption, supported by government measures to enhance disposable income.

In President Luiz Inacio Lula da Silva’s second year in office, growth accelerated from the 3.2% observed in 2023, representing the best rate since the 4.8% growth achieved in 2021. However, the economy displayed signs of a slowdown in the fourth quarter, expanding by only 0.2% when compared to the third quarter, falling short of the 0.5% median forecast from a Reuters poll.

Additionally, the annual growth rate of 3.6% in the fourth quarter did not meet the anticipated 4.1%. Economists forecast a deceleration in GDP growth to approximately 2% for the current year, while the government projects a slightly better figure of 2.3%. This anticipated slowdown is attributed to aggressive monetary policies aimed at controlling inflation, which concluded last year at 4.8%, exceeding the official target of 3%.

Since September, the central bank has increased interest rates by 275 basis points, raising them to 13.25%, with indications of a further 100 basis-point increase expected later this month. This monetary tightening aims to address the robust labor market, expansive fiscal policies, and accelerated credit growth that have sustained consumption and driven aggregate demand.

In conclusion, Brazil’s economy saw a robust growth of 3.4% in 2024, but experienced a slowdown in the fourth quarter. While investment and household consumption contributed positively, the outcomes did not meet economists’ forecasts. Moving forward, the outlook for 2025 suggests reduced growth as monetary tightening is implemented to combat inflationary pressures.

Original Source: www.marketscreener.com