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In Brazil, structural bottlenecks resulted in a meagre average GDP growth (0.6 percent) over the past decade, despite favorable demographics. Productivity growth remains weak, due to a complex tax system, a cumbersome business environment that discourages entrepreneurship, slow and unequal human capital accumulation, ineffective State intervention policies (at the sectoral level), low savings, and compressed public investment to accommodate higher current spending and increasing pension obligations.

The COVID-19 pandemic left Brazil with one of the highest global death tolls, but a rapid vaccine rollout program launched in mid-2021 and a comprehensive economic support policy contributed to a return to relative normality. As of March 30, 2023, 85 percent of Brazilians had received at least one dose of the vaccine, and 77 percent had received two.

In 2022, real GDP grew by 2.9 percent, largely propelled by household consumption, which advanced 4.3 percent in the year. The labor market recovery continued, as unemployment dropped to 7.9 percent by December 2022—the lowest level since 2015—with improved labor conditions for women, youth, and Afro-Brazilians. Brazil’s unemployment rate increased to 8.4 percent in January 2023, interrupting a sequence of ten consecutive retreats in the margin, and 0.5 percentage point above the levels of December 2022, but still 2.8 percentage points below January 2022. Additionally, labor force participation stood at 61.9 percent in January 2023 (down from 62.3 percent in January 2022), and closed below prepandemic levels (63.3 percent).

Inflation has been a persistent challenge for Brazil: its peak at 12.1 percent in April 2022 led to a significant monetary tightening cycle that brought the policy rate to 13.75 percent in December 2022. Fiscal consolidation continued in 2022, supported by higher revenues (8.2 percent of real growth), economic recovery, and favorable terms of trade. As a result, Brazil’s primary surplus stood at 1.3 percent of GDP (0.6 percentage point higher than in 2021), and public debt reached 72.9 percent of GDP (down from 78.3 percent in 2021).

In 2023, real GDP growth is expected to slow to 0.8 percent due to monetary tightening, still high inflation, and subdued global demand. Together, these factors are likely to depress private consumption, exports, and investment. On the fiscal front, public debt is expected to increase gradually to 78.5 percent of GDP by 2025 due to higher refinancing costs, and temporary higher social expenditures. Restoring sustainability still represents one of the most urgent economic challenges for Brazil, despite the ongoing fiscal consolidation achieved throughout 2021–22. The medium-term growth outlook is also subject to risks if total factor productivity remains at current levels. Achieving a higher potential output trajectory would require a revitalized impulse toward implementing structural reforms that could boost and support both investment and productivity.

An expansion of federal social transfers continues to play a key role in providing income support to the poorest segments of society and reducing poverty rates. These transfers contributed to reducing poverty rates to 24.3 percent in 2022, down from 28.4 percent in 2021 (the poverty rate is based on the US$6.85/day, PPP). An overhaul of the Bolsa Família program, including an extra benefit of R$150 per child (ages 0–5) in all recipient families and a strong consolidation effort, is expected to contribute to a slight reduction in poverty to 23.9 percent in 2023. Further reductions may occur as the economy recovers, but they will remain volatile in the absence of stronger investment in human capital among the less well-off.

Striking the right balance between protecting the poor and ensuring public finance sustainability, including at subnational levels, will be a key policy challenge in the years ahead.

Supporting the transition to a greener and more resilient growth model also remains a major challenge. Brazil holds more than 60 percent of the Amazon rainforest, the largest tropical forest in the world. It also has a high share of renewables in its energy matrix, but its high exposure to climate risks and deforestation calls for a strong reform agenda to address these challenges.

Due to the recent increase in deforestation emissions, Brazil is no longer on track to meet its national determined contribution (NDC) targets: a 37-percent reduction in greenhouse gas emissions by 2025, and a 43-percent reduction by 2030, relative to 2005 levels. In addition, Brazil has yet to develop an integrated long-term national strategy to achieve its climate goals. Recent reforms in the infrastructure sector, together with the federal administration’s renewed interest in the climate agenda, provide sound opportunities for Brazil’s green recovery and for lifting millions of Brazilians out of poverty.

Last Updated: Apr 27, 2023

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