Brazil economy on track despite U.S. tariffs, but inflation risk up
U.S. President Donald Trump threatened this month to set a 50% duty on Brazilian goods on August 1 in a spat with his counterpart Luiz Inacio Lula da Silva, who vowed to retaliate if diplomacy broke down.
However, even under steep tariffs, Brazil's economy should continue expanding at a gradual rate in 2025 and next year with the help of a resilient jobs market.
Brazil's gross domestic product (GDP) is forecast to increase 2.2% this year and 1.7% in 2026, according to the median estimate of 38 analysts polled on July 14-21.
As in other countries, economists are mostly sticking to a baseline scenario with moderate tariffs. Both forecasts were slightly better than the consensus view of 2.0% and 1.6%, respectively, in an April survey.
"The domestic labor market remains quite tight, with unemployment at new lows and the real wage mass still expanding at a brisk pace," said Roberto Secemski, a Barclays economist.
"At the margin the uncertainty from tariffs reduces those upside risks, but we don't see them derailing growth at this point."
In the poll, inflation is forecast to slow to 4.4% next year from 5.2% in 2025, just a sliver below the top end of the central bank's goal of 3.0% plus or minus 1.5 percentage point.
On potential tariff negotiations between the U.S. and Brazil, 13 of 16 participants who shared a view expected the August 1 deadline set by Washington to be extended, giving room for talks.
Two envisaged a "no deal" situation that would lead to the implementation of the planned 50% U.S. tariff right after the ultimatum date, mirrored by Brazilian retaliation measures.
One saw a deal leaving in place a lower original 10% "reciprocal tariff" the U.S. put on Brazil and other countries in April, with no reprisal from Brasilia.
Hopes for negotiations contrasted with elevated tensions last week after Lula called the threatened duty "unacceptable blackmail", while Washington imposed sanctions on Brazilian officials.
Trump has linked the 50% tariff to the treatment of former President Jair Bolsonaro, who is on trial over charges of plotting a coup. Additionally, the U.S. launched an investigation into Brazil's trading practices.
Still, the median U.S. tariff on Brazilian goods assumed in analysts' forecasts was 30%, according to answers to another question, considerably lower than Trump's threatened 50%.
Responses to a separate question on Brazil's potential GDP growth in 2026 in a "no deal" scenario pointed to a 1.6%-1.7% consensus range, virtually the same expansion as in the baseline case.
While the U.S. is the second biggest destination of Brazil's exports after China, analysts noted the Latin American country may avoid tariff impact by further redirecting trade to its top market in Asia.
Yet the median range for next year's inflation forecast under "no deal" was 4.4%-4.9%. This reflected some chances of Brazil exceeding the upper inflation goal bound of 4.5%, which would again frustrate the central bank.
Policymakers are expected to keep the country's benchmark interest rate at a two-decade high of 15% at least until the end of 2025, the poll showed.
"The main impact of a no-deal scenario and retaliation by Brazil would likely be on the exchange rate," Santander analysts wrote.
"Uncertainty about the effects of these events on the domestic economy would probably be reflected in currency depreciation and a reversal of the current inflation downward trend."
(Other stories from the Reuters global economic poll)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
13 minutes ago
- The Independent
Trump promised to back Detroit automakers - his deal with Japan has them shaking in their boots
General Motors, Ford and Stellantis - the big three U.S. automakers - pushed back against the Trump administration after President Donald Trump announced a trade deal with Japan that would lower tariffs on vehicles made overseas and hurt the American car companies. Earlier this week, the president said he had signed the 'largest' trade deal in history with Japan, which would include a 15 percent tariff on imported cars – significantly lower than the 25 percent tariff on other imported vehicles. Trump announced the 25 percent tariff on cars made overseas earlier this year, and many of Detroit's companies manufacture cars in Mexico and Canada, which would make them subject to the 25 percent tariff. Higher tariffs likely mean higher costs for consumers, which could lead people to turn to the cheaper Japan-made models. 'Any deal that charges a lower tariff for Japanese imports with virtually no U.S. content than the tariff imposed on North American built vehicles with high U.S. content is a bad deal for U.S. industry and U.S. auto workers,' Matt Blunt, the head of the American Automotive Policy Council, which represents the big three Detroit auotmakers, said in a statement. Blunt said American Automakers were still reviewing the terms of the agreement. During the campaign, Trump visited Detroit and touted the American car industry, promising to 'revolutionize' it. However, shortly after taking the White House, he quickly imposed tariffs on all cars made overseas. General Motors warned just this week that it expects a $4 to $5 billion impact from Trump's tariffs. Auto Drive America, a group that represents U.S. operations of foreign vehicle makers, praised the Japan deal while also calling for Trump to reach similar agreements with the European Union, South Korea, Canada and Mexico. 'We share President Trump's vision to make the U.S. the worldwide center of automotive production, and our member companies need stability in order to create an environment where we can maintain our competitive edge both in the U.S. and on the global stage,' Auto Drive America said. While the deal with Japan will impose lower tariffs, Trump said it will also open market access to the U.S. U.S. auto manufacturers have long struggled to infiltrate the Japanese market, in part because smaller cars that drive on the left side of the road are in much more demand – the type that the U.S. does not typically make. Kush Desai, a spokesperson for the White House, said, 'No president has taken a greater interest in restoring the American auto industry's dominance than President Trump, and his Administration is working closely with the auto industry to achieve this goal.' 'President Trump's trade agenda has already secured historic market access to Japan and Indonesia for Made in America cars with more America First trade deals to come,' Desai added. 'The Administration's domestic policy agenda – from rapid deregulation to the pro-growth tax cuts of The One Big Beautiful Bill – will further boost our auto industry's competitiveness on the world stage and Make American Automakers Great Again.' Hoping to stimulate U.S. manufacturing, the president imposed lofty automotive tariffs earlier this year. Automakers initially raised concerns with the 25 percent tariff in addition to other levies such as those on steel and aluminum. After, Trump offered U.S. automakers some relief through a complicated discount program. Two of the big three Detroit automakers appear to have suffered setbacks. General Motors said Tuesday its second-quarter earnings plummeted 35 percent, compared to the same quarter last year. It also reported a $1 billion loss in second-quarter profits. Stellantis, which makes Chryslers, Jeeps, and more, said it expects to see nearly $350 million in losses in the first two quarters of the year, in part due to tariffs. Around 60 percent of car parts are imported, even if the car is finally assembled in the U.S. Every single 2025 model car sold in the U.S. had at least 15 percent of its parts from a country outside of North America. Trump has threatened to hike tariffs on the U.S.'s largest trading partners, Mexico and Canada, to 30 and 35 percent, respectively.
Telegraph
14 minutes ago
- Telegraph
Colombia's president mocked for using aide as a laptop stand
Colombia 's president was caught on Tuesday using an aide as a laptop stand as he opened the country 's congress. The staffer was seen lying on the floor beside Gustavo Petro, with his arm in the air, holding up the laptop for the president to refer to during his speech. Filmed on a smartphone and shared on social media, the moment prompted mockery of the president online for using a 'human tripod'. In one reaction video, Right-wing podcasters fell about with laughter as they noted the irony of the Left-wing president referencing anti-slavery policies in his speech. The full official footage was posted online by the president's own office. Many in the audience appeared to have been preoccupied with their phones during the nearly two-and-a-half-hour speech. At least two audience members could be seen sitting on the floor in the middle of the auditorium. Nor did anyone in the room seem surprised when the aide proceeded to take a prone position an hour and a half into the speech, and Mr Petro appears to make no secret of the task he has handed to his staffer. The aide appeared by Mr Petro's side during a portion of the address in which he referred to a series of slides displaying various graphs regarding proposed healthcare reforms. He was seen gesturing at the laptop and leaning in to take a closer look at the data on the screen. The aide's face appeared occasionally over the top of the desk.
Reuters
14 minutes ago
- Reuters
ECB policymakers set high bar for Sept rate cut, sources say
FRANKFURT, July 24 (Reuters) - European Central Bank policymakers are setting a high bar for an interest rate cut in September and they would need to see a significant deterioration in growth and inflation before backing further easing, two sources told Reuters. The European Central Bank left interest rates unchanged on Thursday after cutting eight times in a year, biding its time while Brussels and Washington try to negotiate a trade deal that could ease persistent uncertainty over tariffs. But sources at the meeting said that policymakers would not be spurred into action by the mere announcement of U.S. duties on European Union imports. Instead, they would need to see an actual weakening in the inflation and growth data as well as lower projections from ECB staff in September if they are to back a rate cut. An ECB spokesperson declined to comment. While the discussion on Thursday was harmonious, a few policymakers wanted to send out a warning about inflation coming in lower than expected. Instead, the ECB said that risks to economic growth were "tilted to the downside" while "the outlook for inflation (was) more uncertain than usual". ECB President Christine Lagarde hinted at this division, saying that, while the decision to keep rates on hold was unanimous, the risk assessment was "broadly shared". The sources said that policymakers mostly agreed on how the economy would behave in the ECB's baseline scenario, in which the U.S. administration imposes a 10% tariff rate on European Union imports. But they differed about the adverse scenario, in which the tariff rate is higher. Policy hawks, who favour higher interest rates, saw risks that inflation would get a boost from supply disruptions related to tariffs and possible retaliation. Doves saw downside risks from slower economic activity prevailing. Lagarde, who said her job was to present the view of the Governing Council rather than her own, listed both types of risks in her news conference.
