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Brazil is home to 203 million people with a real GDP per capita of US$8,802 in 2022. It is a large federal country comprised of the union (federal government), 26 states (plus the Federal District), and over 5,500 municipalities. While it is highly diverse, racial and gender discrimination persist as systemic barriers that limit the opportunities of many individuals and families to break the inter-generational cycle of poverty.

Its people live in multiple ecosystems across a landmass of 8.5 million km2 (about the size of the continental United States), with sharp differences in race, history, culture, and industry manifesting many “Brazils.” The country’s overall Human Capital Index (HCI) shows that Brazilian children born today will have, as adults, only 55 percent of the productivity they would have had with full access to quality health and education opportunities. Factoring in adult unemployment, their productivity falls to 33 percent, implying that 67 percent of Brazil’s talent is lost to society.

Afro-Brazilians and Indigenous Peoples have less access to good-quality schools and health services than whites, and women face job discrimination that limits their earning potential far more than men. Even before COVID, some areas of Brazil had an HCI at around 40 percent (e.g., in the North and Northeast regions), akin to what can be found in Sub-Saharan Africa, while others (e.g., in the richer Southeast of Brazil) had HCI levels around 70 percent, on par with countries in the Organization for Economic Cooperation and Development (OECD).

Brazil’s real GDP expanded 2.9 percent in 2023 driven by robust private consumption, still supported by a strong labor market and fiscal stimulus to social transfers, and by a favorable external environment benefiting exports. In 2024, GDP is expected to grow by 1.7 percent, driven by the delayed effects of monetary tightening and a lower carry-over effect for the year. Inflation will gradually converge towards 3.5 percent by 2025, slightly above the Central Bank’s target of 3 percent (+/-1.5 percentage points) but allowing for a gradual easing of monetary policy and contributing to a recovery of growth in 2025 (2.2 percent).

Going forward, real GDP growth is expected to moderate to about 2 percent in the medium term. Poverty, measured at the US$6.85 per capita per day poverty line, decreased from 23.5 percent in 2022 to 21.3 percent in 2023, explained by improvements in economic conditions and social protection policies such as the Bolsa Familia program. 

Brazil’s macroeconomic buffers remain solid, with large international reserves, low external debt, a credible central bank, a resilient financial system, and exchange rate flexibility. In addition, Brazil initiated the first phase of a long-awaited reform of indirect taxes, whose further legislation will be elaborated in 2024. The indirect tax reform is expected to improve the business environment through tax simplification and to boost productivity.

However, the general government primary deficit reached 2.3 percent of GDP in 2023, from a surplus of 1.2 percent in 2022, while debt stands at 74.3 percent of GDP, up from 71.7 percent in 2022. Structural challenges for the Brazilian economy include a still complex tax system, a cumbersome business environment that discourages entrepreneurship, low savings and infrastructure investments, and limited integration in global markets that curb innovation and hinder competitiveness. Aging related challenges, particularly in health and pensions, are projected to put pressure on public finances.

Achieving higher levels of productivity and sustainable growth remain a key challenge that has become more urgent and will require bolder action. Productivity growth in manufacturing and services has been stagnant for 20 years and growth projections remain below upper middle-income country peers. While the agriculture sector registered productivity gains (through investments in innovation, technology, and trade logistic, as well as sector-specific government incentives) and sustained Brazil’s position as the world’s third-largest agricultural and food exporter, part of this success relied on extensive farming methods that threaten important biomes and biodiversity.

Overall, it is now clear that Brazil cannot rely on commodity booms and greater inputs of land and labor to reach high-income status. Instead, it needs to shift away from factor accumulation towards a low-carbon productivity-led growth model that is 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, higher openness to trade, and integration with regional and global value chains.

A more conducive business environment would attract greater private investment in industries and in the climate transition. Despite the financial system’s development, further progress is needed to increase its efficiency. Finally, Brazil could empower its entire workforce to contribute and benefit further, especially by easing the systemic barriers that limit capital accumulation and job opportunities among Afro-Brazilians, Indigenous Peoples, women, and youth.

Moreover, Brazil’s natural endowments position it well to exploit 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 change and agriculture, stopping deforestation and transitioning towards low-carbon agriculture is a priority.

The Amazon rainforest is now near a tipping point beyond which it might not generate enough rainfall to sustain its own ecosystem or the agriculture, hydropower, water supply, and industries that have fueled Brazil’s growth, or the environmental services that it provides to the rest of Latin America and the Caribbean as well as the rest of the world. Efforts to stop deforestation in the Amazon cannot result in more deforestation in other biomes like the Cerrado, as they are also important for similar reasons.

The agriculture sector has scope to curb deforestation and scale-up climate-smart land use while raising its productivity further. In addition, given its low-carbon energy matrix, Brazil can decarbonize transport, industry, and cities (“deep decarbonization”) at a very low net cost of about 0.5 percent of GDP per annum above “business as usual” costs, on average, between now and 2050. Doing so would position Brazil extremely well to integrate its businesses into the green economy of the future.

Significant progress is within reach, but time is of the essence. The current government brought renewed political will, a strong reform agenda, and ambitious development programs to fight hunger and inequality, promote social justice, re-industrialize Brazil, and embrace a greener economy. It is committed to reaching zero illegal deforestation by 2030 and has launched an ambitious Ecological Transformation Plan (ETP) to promote inclusive and sustainable development while tackling climate change. The ETP’s goals are to boost productivity and generate well-paid green jobs, to reduce the economy’s environmental footprint, and to promote equitable development through better income distribution and benefits.

Additionally, significant progress will require sustained efforts and strong buy-in among key actors, including in the private sector, in a way that transcends political divisions and election 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 also generating stronger foundations for the longer-term.

Last Updated: Apr 05, 2024

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