By Brazil Stock Guide – Brazil’s economy is still growing, but the cost of that growth is rising, according to BTG Pactual. In its June macro outlook, signed by the bank’s macroeconomics team and led by chief economist Mansueto Almeida and head of macro research Tiago Berriel, BTG raised its 2026 GDP forecast to 2.0%, from 1.9%, after a stronger first quarter and resilient early second-quarter indicators. But it cut its 2027 growth estimate to 1.1%, from 1.6%, as higher interest rates, fading fiscal stimulus and persistent inflation point to a more difficult year ahead.
The message is not that Brazil is falling into a crisis. It is more nuanced — and, for markets, perhaps more uncomfortable. The economy remains firm in the short term, but the macro mix has deteriorated. Growth is being supported by demand stimulus, a still-tight labor market and strong external accounts. At the same time, inflation expectations have worsened, public debt projections have risen and the central bank has less room to ease monetary policy.
A narrower path
Inflation is the clearest source of concern. BTG revised its IPCA forecast for 2026 to 5.3%, from 4.9%, and its 2027 estimate to 4.5%, from 4.2%. The bank links the deterioration to the recent oil shock, which feeds into food through diesel costs, industrial goods through higher input prices and services through stronger inertia and less anchored expectations. The report also incorporates the impact of a strong El Niño and says the balance of risks remains tilted upward for both this year and next.
That makes the Selic path more delicate. BTG still expects one final 25-basis-point cut in June, taking Brazil’s benchmark interest rate to 14.25%, followed by stability through the end of 2026. But the report’s tone is cautious: worsening current inflation, resilient activity, a strong labor market and weaker long-term expectations would already argue for a pause. The risk, according to the bank’s framework, is that cutting too far now could deepen the loss of inflation credibility and reduce the room for easing in 2027.
BTG’s own reading of the central bank model reinforces that discomfort. In one scenario, even with the Selic held at 14.50% until the fourth quarter of 2027, projected inflation in the relevant policy horizon would remain above the 3.0% target, suggesting little room for additional cuts under a strict model reading.
Fiscal pressure
The fiscal backdrop is another reason the outlook has soured. BTG says parafiscal measures announced since mid-2025 already total about R$275 billion and should inject another R$142 billion into the economy this year. That demand support helps explain near-term resilience, but it also reduces the space for monetary easing and worsens the outlook for nominal deficits and debt.
The bank projects a nominal deficit of 8.9% of GDP in 2026 and 8.4% in 2027, reflecting the burden of high interest rates. Gross public debt is now expected to reach 80.9% of GDP in 2026 and 85.0% in 2027, above previous estimates.
The external cushion
The counterweight is Brazil’s external position. Higher oil prices and stronger export volumes, especially in crude, support BTG’s forecast of a US$90 billion trade surplus in both 2026 and 2027, with upside risk. The bank expects the current-account deficit to narrow to 2.3% of GDP and projects the exchange rate at R$4.90 per dollar by the end of 2026.
That is an important distinction. This is not a classic emerging-market stress story built around a collapsing currency or external financing pressure. Brazil still benefits from strong trade flows, potentially better terms of trade and a wide interest-rate differential. The problem is domestic: inflation, fiscal impulse and monetary policy are pulling in less comfortable directions.
Costlier growth
For investors, the conclusion is more selective than outright negative. A Brazil that grows 2.0% in 2026 is not weak. But a Brazil that needs a Selic above 14%, faces IPCA above target and carries debt toward 85% of GDP by 2027 is also not an easy macro story. The scenario has not broken. It has become more expensive. Brazil can still grow this year, but the price is higher inflation, higher-for-longer interest rates and less room for policy mistakes in 2027.