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Brazil’s GDP for 2024 grew by 3.4%, exceeding market forecasts and continuing the trend of economic growth seen over the past four years.
Experts caution that the current growth, fueled by excessive consumption and expansive fiscal policies, may not be sustainable and raises worries about inflation and the overall health of the Brazilian economy.
Rubens Cittadin, an analyst at Manchester Investimentos, highlights that the GDP’s positive performance does not indicate a genuine boost in productivity but rather a rise in public spending. This raises concerns about the sustainability of the growth.
The 3.4% GDP growth is significant, but it is not tied to improved efficiency or productivity. Instead, it is attributed to the rise in public spending, which directly affects inflation.
Cittadin also points out that the government’s efforts to boost the economy with fiscal spending can lead to inflationary pressure, requiring higher interest rates to manage consumption.
The result will be an increased growth that may speed up in an unhealthy manner, leading to greater inflation and interest rates.
Matheus Spiess, an analyst at Empiricus Research, is worried about the sustainability of growth in Brazil, as he believes the country is expanding beyond its maximum capacity. This situation is leading to inflation and the necessity for increased interest rates.
Brazil is expanding beyond its capacity, which could become unsustainable, leading to increased inflation and the need for higher interest rates to manage excessive consumption, according to the expert.
This poses a challenge to the continued growth, indicating that the growth observed in 2024, particularly, is not only sustainable but also lacks robust health.
Spiess points out that the agricultural industry, which has historically been a key driver of Brazil’s economic growth, had a negative impact on performance in 2024, indicating that the foundation of growth is skewed and unsustainable.
Consequences for the economy due to elevated inflation and interest rates
The rise in GDP, fueled largely by higher household spending, is leading to growing inflationary pressures.
The 2024 IPCA, ending at 4.83%, exceeded the Central Bank’s 4.5% target ceiling due to increased consumption and inflationary pressure.
Cittadin cautions that rising inflation will compel the Central Bank to sustain high interest rates, potentially halting future growth. The increased inflation will prompt the Central Bank to raise interest rates, hampering the development of productive growth. This poses a risk of the economy becoming more constrained, with the cost of money increasing.
Spiess believes that keeping interest rates high can hinder sustainable growth.
The analyst mentioned that the government will face challenges in sustaining the current growth rate due to the elevated interest rate. This high interest cycle is expected to hinder economic activity and constrain the potential for strong growth.
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