OECD improves projection for Brazil and forecasts GDP growth of 1.9% in 2024

The Organization for Economic Cooperation and Development (OECD) improved its projection for the growth of the Brazilian economy this year, but still sees a slowdown compared to 2023. Brazil’s Gross Domestic Product (GDP) is expected to increase by 1.9% in 2024, above the previous estimate of an increase of 1.8%, according to a report by the international organization, released today. Last year, the country grew 2.9%.

+ OECD raises global GDP growth forecast in 2024, from 2.9% to 3.1%

“Driven by robust employment growth, minimum wage increases and falling inflation, household spending is expected to be the main driver of growth, especially in 2024,” says the OECD, in a report published today.

The organization also improved its expectations ahead, as it sees the Brazilian economy accelerating its pace. The OECD estimates that Brazil’s GDP will grow 2.1% in 2025, compared to a previous projection of 2.0%.

But there are downside risks to Brazil’s economic projections, he warns. According to the OECD, greater geopolitical tensions and slower growth in China, an important trading partner for the country, could dampen external demand, while fiscal imbalances pose threats of inflationary pressures.

In this sense, the international organization based in Paris, France, reinforces the chorus regarding the importance of fiscal consolidation in Brazil. “The key to restoring confidence in public finances is meeting the primary result target and implementing the new fiscal framework”, he states in the document.

“A broader reform of fiscal policy would help create fiscal space and improve debt sustainability,” he adds, mentioning benefits from adjustments on the expenditure side and not just increased funding.

According to the OECD, uncertainties regarding recent fiscal measures and pressure on health and education expenses may cast doubt on the ability of President Luiz Inácio Lula da Silva’s government to deliver the zero primary deficit target promised for this year. She also predicts that Brazil’s debt should increase slightly, because, at the current rate, the primary budget is not capable of stabilizing the debt level at the current 75% of GDP.

Inflation and interest

The OECD expects inflation in Brazil to continue converging towards the target this year and next. The Broad National Consumer Price Index (IPCA) is expected to fall to 4.0% and 3.3%, respectively. In 2023, it was 4.6%. “The general trend indicates a likely further decline in inflation throughout the year”, says the OECD.

In this scenario of falling inflation, the organization expects that the easing of monetary policy in Brazil will continue throughout 2024. In turn, uncertainties in the international scenario will keep private investment moderate throughout the current year.

“As inflation declines further, additional cuts in interest rates are expected, reducing the Selic to 8.75% by the end of 2024 and 8.25% by the second half of 2025”, projects the OECD.

The international organization considers, however, that the pace of cuts in the Brazilian interest rate could be affected by greater internal uncertainties such as fiscal issues, which could affect the exchange rate and inflation dynamics.