Brazil’s economic landscape is showing signs of contraction, as indicated by the latest data from the Brazilian Central Bank. The bank’s economic activity index, a precursor to the official GDP figures, revealed a 0.06 percent decline in September compared to August. This downturn contrasts with the stronger-than-expected performance of the Brazilian economy in the first half of the year, which has since reversed course, with the IBC-Br index also falling below market predictions in August.
The index has recorded a 2.5 percent increase over the past 12 months. However, the deceleration in economic growth is becoming increasingly evident. Key indicators, such as industrial production, have remained stagnant for a year, while retail sales are on a downward trend. Additionally, the services sector, which is a major contributor to Brazil’s formal employment and accounts for around 70 percent of its GDP, has experienced contraction for two consecutive months.
The Finance Minister, Fernando Haddad, earlier this year, warned of potential fiscal challenges if the current economic slowdown persists, highlighting its impact on tax revenues. From January to September 2023, the federal government of Brazil reported a primary deficit of BRL 92.6 billion (USD 18.4 billion) when adjusted for inflation. This deficit is the largest since the peak of the pandemic crisis.
Despite these financial difficulties, the government has delayed considering a proposal to Congress for a more flexible fiscal target in 2024, a year in which it is expected to achieve a zero-deficit budget. However, analysts anticipate that the government may revisit this idea in December during the voting on next year’s budget or early next year when the Public Treasury reviews the public accounts.