The domestic and international scenarios have increased the challenges for companies and their leaders in Brazil this year, and the outlook is that efforts to address them should be maintained in the short term. The climate of global uncertainty – exacerbated by the Trump administration's tariff measures – and internal factors, such as inflation far from the target center, high interest rates, high public debt and an environment of pre-election anticipation, bring unpredictability and, therefore, inspire caution in businesses, which should have a high cost of capital.
“We do not foresee a recession for Brazil, but when we consider expansionist fiscal policy, restrictive monetary policy, and a still adverse international scenario, all of this brings a moment of caution to the productive sector.”
Alex Agostini, Chief Economist at Austin Rating
Despite the turbulent times, economists warn that there are no reasons or prospects for an economic crisis. “We will have turbulence, with high capital costs, but we are not facing a crisis scenario,” says the chief economist of the BV Bank, Roberto Padovani. Alex Agostini, Chief Economist at Austin Rating, a credit rating agency, also does not see the possibility of a deeper impact on the Brazilian economy. “We do not foresee a crisis or recession for Brazil, but when we consider expansionist fiscal policy, restrictive monetary policy, and adverse international scenarios, naturally, all of this brings a moment of caution to the productive sector,” he emphasizes.
With a more challenging scenario on the horizon, companies tend to be more thrifty in their short-term projects, with some reduction in investments, economists believe. According to Padovani, there are no indicators yet of an intention to reduce investments, but he already notices greater caution in this regard. (see table on industry confidence index at the end of the text)). “I visited a large client, with high, strong production, operating close to capacity, but he is certainly more cautious when thinking about investments,” he says.
Some sectors that are more sensitive to high interest rates, such as durable consumer goods, including vehicles and real estate, are likely to be more affected. Long-term strategic plans should still be preserved, says Agostini.
In undefined scenarios, it is more difficult to anticipate the future. Therefore, it is natural that daily operations in the financial market begin to incorporate the so-called risk premium.
In an interest rate contract, for example, an additional spread is included as a form of protection against increased unpredictability.
Great instability also leads to the postponement of consumption, production and investment decisions.
Trump effect contributes to less predictable world
The proximity of April 2, the date announced by US President Donald Trump for the start of a new wave of tariffs on nations and economic blocs, also contributes to the climate of apprehension. The fear is that the tariffs, even though they are one of the main promises of the Republican's electoral campaign, will increase inflation in the United States, restricting the possibility of reducing interest rates and increasing the risk of leading the country into an economic recession.
Tariff policy, which tends to be a relevant issue throughout Trump's term, makes the American economy more closed and generates inflationary pressure not only in the United States, Padovani observes. By imposing tariffs, the countries and blocs subject to the tariffs are likely to react by closing their markets to American purchases, which also increases their costs and puts pressure on inflation. However, given the economic strength and political weight of the United States, it is more likely that the country will impose more tariffs than receive retaliation in a trade war. The result will be less global growth with more inflation, says Padovani.
Another component that adds concern is the geopolitical situation, such as the war in Ukraine. And the interventions of the President of the United States in this area represent an additional source of instability in the markets, with repercussions on the stock exchanges and on companies’ decisions, says Padovani. “In our scenario, at the bank, we do not work with conflicts spreading, but what is worrying is the financial impact of this. Clearly, we are moving towards a less predictable world. Not only because of Trump’s caricature style, but also, to a certain extent, because of the practical consequences of not knowing exactly what the reactions of other countries will be and how this redesign of the global order will be,” he says.
High public debt, rising interest rates, pressure on the dollar and the 2026 election factor
Regarding the domestic scenario, one of the biggest concerns is related to the trajectory of public debt, particularly impacted by the presidential elections next year, according to analysts. “Even though the presidential elections will only be held in 2026, the government has already been operating its economic policy to provide short-term stimulus, and this leads to the impression that, at this time, it will not promote significant adjustments to the public accounts,” says Padovani.
According to the economist, the approval of the budget on Thursday (3/20), three months late, does not change this scenario. The text approved by Congress predicts a positive balance of R$15 billion in public accounts, a projection that ignores the increase in expenses and the lower revenue estimate by most experts. According to Padovani, the result is irrelevant, because the debt dynamics would require a much higher primary surplus today, due to the interest rate. “Everyone knows that the fiscal effort that is made will not be enough to change the dynamics of public debt,” he says. “So, there is a problem of lack of credibility and trust.”
Among the stimuli considered short-term are the expansion of income distribution programs, such as the loan secured by the FGTS as collateral and the proposal to exempt income tax for those who earn up to R$1,400,000, and the increase in the supply of credit from public banks. "On the one hand, the Central Bank closes the tap, on the other, the government opens it; so we can't balance the forces," says Agostini. "We know that this ends up making monetary policy less efficient."
"The combination of the global scenario and public debt impacts financial flows to the country, putting pressure on the exchange rate (of the dollar), the costs of companies, which pass them on, and inflation, which is showing difficulty in falling. This leads to a very cautious stance by our Central Bank.”
Roberto Padovani, Chief Economist at Banco BV
Focus projects reduction in inflation, but still above target
In his latest decision (19/3), the Monetary Policy Committee (Copom) of the Central Bank (BC) raised, for the fifth time in a row, the basic interest rate, the Selic, from 13,25% to 14,25% per year, to its highest level since October 2016. In a note, it explained that the decision was made in an “adverse scenario” for inflation convergence, but it has already anticipated a smaller adjustment at the next meeting, if the expected scenario is confirmed.
O Focus Bulletin this Monday (24/3) shows that economists consulted by the BC reduced, for the second consecutive week, expectations for the Consumer Price Index (IPCA) of 2025, which went from 5,66% to 5,65%. Even with the slight decline, projected inflation is still well above the center of the target (3%) and the ceiling (4,5%). In addition, the market worsened its view on economic growth, reducing the GDP forecast from 1,99% to 1,98% this year. Since January, when I was in 2,02%, this is the third downward revision by the market for the economy's performance in 2025.
The dollar projected for 2025 fell from R$ 5.98 to R$ 5.95, reflecting a depreciation of 7.5% in the year. Current exchange rate levels, even though they show relief compared to the end of last year, are still the highest in five years, says Padovani. Last year, the real was the sixth currency that depreciated the most against the dollar in a ranking of 118 countries prepared by Austin Rating. devaluation was in the order of 27%, closing the R$ 6,179.
BC signals lower interest rate hike in May
Lack of trust
O Industrial Business Confidence Index (ICEI), from the National Confederation of Industry (CNI), shows pessimism among industry leaders regarding the current scenario. In March, for the third consecutive month, the indicator did not surpass the 50-point mark, which separates confidence from lack of confidence, standing at 49.2 points. The Current Conditions Index sub-index, for example, fell 0.4 points in March compared to February, to 44 points. However, according to the ICEI, carried out between March 6 and 12, positive prospects for the next six months increased, as the Expectations Index rose 0.3 points, to 51.8 points.
ICEI and its components
Diffusion indices*
| MAR 24 | FEB 25 | MAR 25 | |
| ICEI | 52,8 | 49,1 | 49,2 |
| Current conditions¹ | 47,5 | 44,4 | 44,0 |
| Brazilian Economy | 44,1 | 37,0 | 36,6 |
| Company | 49,2 | 48,2 | 47,6 |
| Expectations² | 55,4 | 51,5 | 51,8 |
| Brazilian Economy | 49,7 | 42,8 | 43,0 |
| Company | 58,2 | 55,8 | 56,2 |
Sample profile
1,189 companies, 455 of which are small, 450 medium and 284 large
Collection period
From March 6th to 12th, 2025
¹ Compared to the last six months
² For the next six months
Source: CNI
Brazil's credit rating remains unchanged
Although the current situation requires diligence, there is no reason to wait for worse times. According to Agostini, as a risk rating agency, Austin Rating sees no reason to worsen the credit rating, that is, to downgrade it, nor to improve it. “The country’s rating remains under observation, and economic growth is, in some way, helping to mitigate the impact on the debt/GDP ratio,” he states. The agency classifies the Brazil with BB+ credit rating, one step away from obtaining investment grade, considered the seal of good debt payer.
. Christianne Schmitt is editor of the Reputation Feed
christianne.schmitt@ankreputation.com.br