Brazil’s economy has improved significantly in recent years. In 2024, the Gross Domestic Product (GDP) rose by 3.4%, achieving the strongest annual expansion since 2021. The GDP grew by 3.6% in the fourth quarter, coming in just below market expectations. 

Why it matters: Despite last year’s strong performance, Brazil’s economy is expected to moderate in 2025, particularly due to rising inflation, higher interest rates and devaluation of Brazilian currency, all of which threaten to slow GDP growth.

Inflationary pressures

Brazil’s annual inflation for December was slightly below market forecasts but exceeded the central bank’s target for 2024, prompting policymakers to tighten monetary policy to meet their inflation goals. The country’s 12-month inflation closed last year at 4.83%, according to IBGE. This is below the 4.88% expected by Reuters-polled economists and last month’s 4.87%, Reuters reports.

In response to persistent inflationary pressures, the Central Bank of Brazil implemented a monetary tightening strategy by raising interest rates. In January, the bank raised its benchmarking interest rate (Selic) by 100 basis points to 13.25% and indicated that if inflationary pressures persist, they would continue to do so. The bank also signaled another hike of that size in March, according to a Reuters article.

Currency devaluation

The gradual devaluation of the Brazilian real over 2024 is the result of global investors growing increasingly concerned about the Brazilian economy’s structural problems and the fiscal remedies offered by President Luiz Inácio Lula da Silva’s administration.

The administration’s new fiscal policy to increase Brazil’s revenue without making necessary spending cuts backfired and led to a credibility crisis. By the second quarter of 2024, this strategy resulted in a sharp devaluation of the Brazilian currency against the U.S. dollar. This forced the administration to introduce a last-minute package of spending cut measures to keep the fiscal framework afloat. Additionally, the government was forced to introduce last-minute spending cuts, but Congress only approved a weakened version of this plan. 

What’s next: Brazil’s economy is expected to moderate this year, with projections for 2.2% growth, Reuters reports. Recently, customers in Brazil have averaged 45 days beyond terms, with 56% saying payment delays have stayed the same, according to the FCIB Credit and Collections Survey. The most common causes for payment delays are regulatory issues and governmental approval (both at 44%). “Ensure you have local data on customers,” a survey respondent wrote. “Brazil is not required to share as much insight as other countries.”

The bottom line: As Brazil tackles economic challenges, credit professionals must stay informed and assess customers’ financial status before engaging in business.