Brazil is home to 205.3 million people, with a real GDP per capita of $10,616 in 2024. It is a large federal country composed of the Union (federal government), 26 states (plus the Federal District), and over 5,500 municipalities. Despite being a highly diverse society, racial and gender discrimination persist as systemic barriers that limit the opportunities for individuals and families to break the intergenerational cycle of poverty.
Brazilians live in various ecosystems across a landmass of 8.5 million km² (approximately the size of the continental United States), with sharp differences in race, history, and culture. The country's overall Human Capital Index (HCI) shows that children born today will only achieve 55% of the productivity they could have if they had full access to quality health and education opportunities. Considering adult unemployment, productivity drops to 33%, implying that 67% of Brazil's talent is lost.
Afro-Brazilians and indigenous peoples have less access to quality schools and health services than whites, and women face workplace discrimination, limiting their earning potential. Even before the COVID-19 pandemic, some areas of Brazil had an HCI around 40% (e.g., in the North and Northeast regions), similar to what can be found in Sub-Saharan Africa, while others (e.g., in the wealthier Southeast) had indices around 70%, on par with countries in the Organization for Economic Cooperation and Development (OECD).
Brazil's economic growth has shown resilience, averaging above 3% over the past three years. Strong private consumption, driven by social transfers, was the main driver of demand, while on the supply side, growth in the services and agricultural sectors played a key role. The expanding labor market helped reduce poverty and inequality.
To sustain growth amid demographic changes, more structural reforms are needed to increase productivity, especially outside the agricultural sector; improve the business environment, promote innovation and trade openness, strengthen educational outcomes, increase savings and infrastructure investments, and enhance resilience to climate change, particularly in the Amazon. The recent indirect tax reform is expected to improve productivity, reduce compliance costs, simplify the tax system, and remove numerous economic distortions. Challenges related to aging, particularly in health and pensions, are projected to pressure public finances.
Brazil's real GDP grew by 3.4% in 2024, driven by solid consumption, supported by a heated labor market and fiscal transfers, and the recovery of investments. Real GDP growth is expected to moderate to 2.2% in 2025 as higher interest rates and an adverse external environment weigh on investment, and household consumption slows due to rising household debt, lower transfers, and diminishing labor market gains. In the medium term, GDP is expected to converge to 2.3%, reflecting the effect of past and ongoing structural reforms.
Inflation is expected to gradually converge to 4.2% by 2027, within the Central Bank's target, as ongoing monetary tightening anchors price expectations and contributes to moderate growth.
The current account deficit increased to 2.8% of GDP, driven by higher imports of goods and services, financed mainly by net foreign direct investment of 2.1% of GDP. Meanwhile, the Real depreciated by 27.9%, reaching R$6.19/US$1 at the end of 2024, reflecting changes in the external environment and fiscal uncertainty. Reserves remained at 15% of GDP, covering 14 months of goods imports.
Poverty, measured at the $6.85 per capita per day line, decreased from 21.7% in 2023 to 20.9% in 2024, thanks to a strong labor market. 2.8 million jobs were created, amid a record low unemployment rate of 6.2% at the end of 2024 and a rising labor force participation rate. Average real wages increased by 4.8%, above the real increase of 3% in the minimum wage. Poverty reduction in the following years is expected to be slow due to the lack of fiscal space for increased social spending and reduced growth in the services sector, where 80% of the poor are employed.
The general government primary fiscal deficit decreased from 2.3% in 2023 to 0.3% of GDP in 2024, driven by strong revenue growth and reduced expenditures, particularly one-off judicial payments, "precatórios" (0.9% of GDP in 2023). The General Government Gross Debt increased from 73.8% to 76.5% of GDP in 2024 due to higher interest payments.
Efforts to contain expenditure growth and increase fiscal revenues are expected to improve the primary deficit from 0.1% of GDP in 2025 to a surplus of 0.3% of GDP by 2027. Public debt is projected to reach 79.6% of GDP by 2028, driven by high short-term interest costs, highlighting the need for additional fiscal efforts. Thereafter, debt is estimated to slowly decline, supported by primary surpluses, continued GDP growth, and moderation in domestic interest rates.
Despite the expected improvement, fiscal sustainability remains a challenge. Budget rigidity and indexed expenditure growth undermine public spending efficiency, eroding fiscal space for public investments. With high and rising debt relative to GDP, highly sensitive to negative economic shocks, a primary fiscal adjustment of 3% of GDP is needed to reverse the debt trajectory and rebuild fiscal buffers. Controlling age-related spending, particularly pensions, through reforms such as minimum wage indexation is essential for meeting fiscal rules and targets, improving fiscal policy credibility. Additionally, a proposed income tax reform aimed at broadening the tax base and increasing progressivity would further support fiscal sustainability.
Brazil's macroeconomic buffers remain solid, with ample international reserves, low external debt, a reliable and independent Central Bank, a resilient financial system, and exchange rate flexibility.
Overall, it is now clear that Brazil cannot rely on commodity booms, greater land, and labor inputs to achieve high-income status. Instead, the country needs to shift from factor accumulation to a low-carbon productivity-led growth model, driven by high-quality education and modern infrastructure, including digital, to create more and better jobs. Brazil could also act as a global innovation hub through more competition, greater trade openness, and integration with regional and global value chains.
A more conducive business environment would attract greater private investment in industries and the climate transition. Despite the evolution of the financial system, more progress is needed to increase its efficiency. Finally, Brazil could empower the entire workforce to contribute and benefit further, especially by alleviating systemic barriers that limit capital accumulation and employment opportunities among Afro-Brazilians, indigenous peoples, women, and youth.
Moreover, Brazil's natural resources position it well to seize new growth opportunities as the world shifts to low-carbon economic sectors and markets. Since three-quarters of Brazil's greenhouse gas (GHG) emissions result from land-use changes and agriculture, stopping deforestation and transitioning to low-carbon agriculture are priorities.
The Amazon Rainforest is now close to a tipping point beyond which it may not generate enough rainfall to sustain its own ecosystem, as well as agriculture, hydropower, water supply, and industries that have fueled Brazil's growth, nor the environmental services it provides to the entire world. Efforts to halt deforestation in the Amazon must not result in more deforestation in other biomes, such as the Cerrado, as they are also important for similar reasons.
The agricultural sector has room to curb deforestation and expand climate-impactful land use while further increasing its productivity. Additionally, given its low-carbon energy matrix, Brazil can reduce carbon emissions generated by transport, industry, and cities at a very low net cost, about 0.5% of GDP per year on average until 2050. This would position Brazil very well to integrate its businesses into the green economy of the future.
Significant progress is within reach, but time is short. The current government has brought renewed political will, a strong reform agenda, and ambitious development programs to combat hunger and inequality, promote social justice, reindustrialize Brazil, and embrace a greener economy. It is committed to achieving zero illegal deforestation by 2030 and has launched an ambitious Ecological Transformation Plan (ETP) to promote inclusive and sustainable development while combating climate change. The ETP's goals are to increase productivity and generate well-paid green jobs, reduce the economy's environmental footprint, and promote equitable development through better income and benefit distribution.
Moreover, significant progress will require sustained efforts and strong adherence among key actors, including the private sector, in a way that transcends political divisions and electoral cycles. If successful, the programs, policies, and reforms adopted now would help strengthen Brazil's productive structure and technological innovations in the short term while laying stronger foundations for the long term.
Last Updated: Apr 30, 2025
