Brazil Economy Slows to 0.4% Growth in Q2 2025 Amid High Interest Rates

Brazil's economy experienced a significant slowdown in the second quarter of 2025, growing just 0.4% compared to the previous quarter, down from the 1.3% surge in the first quarter largely driven by a record agricultural harvest. While services and extractive industries continued to grow, agriculture contracted due to seasonal factors, and investment declined amid high interest rates that have been raised to a near two-decade high of 15%. Household consumption showed modest growth supported by government measures, but government consumption and retail sales weakened, reflecting tighter credit conditions and cautious business sentiment. Despite the slowdown, Brazil's GDP still expanded 2.2% year-on-year, slightly above market expectations, with unemployment at a record low and formal employment rising. The central bank faces the challenge of balancing the decision to maintain or lower interest rates amid stable inflation and slower growth. Additionally, external risks loom as U.S. tariffs threaten a significant portion of Brazil's exports, adding uncertainty to the economic outlook.