Brazil Trails Mexico and Colombia as Q2 Growth Falters

Brazil’s Central Bank reported that the economy grew only 0.3 percent in the second quarter of 2025, after a 1.4 percent gain in the first quarter.

The bank’s IBC-Br index, a proxy for GDP, shows the slowest pace since 2023, with services growing 0.7 percent, industry nearly flat at 0.1 percent, and agriculture shrinking 3.1 percent.

The slowdown reflects the impact of Brazil’s policy rate, the Selic, held at 15 percent, its highest level in almost two decades. The Central Bank confirmed that rates will remain elevated for a “prolonged period,” limiting borrowing and investment.

Inflation has eased to 5.23 percent in July, but it remains above the official 3 percent target. Financial markets expect Brazil’s economy to expand 2.21 percent in 2025, well below the 3.4 percent achieved in 2024.

The bank itself projects 2.1 percent growth. In June, activity fell 0.1 percent after a 0.7 percent drop in May, showing how tight financial conditions weigh on momentum.

The latest figures also reflect structural pressures. A new 20 percent import tax on small cross-border e-commerce purchases and a higher state-level tax on these goods increase prices for consumers.

At the same time, Brazil secured greater flexibility within Mercosur to exclude up to 150 items from the common external tariff, a move designed to ease input costs for domestic industries.

Brazil’s Growth Slows Amid Tariffs and High Rates

The government also extended 25 percent tariffs on steel imports, shielding producers while raising costs for manufacturers that depend on the material.

Regional comparisons underline Brazil’s position. Mexico’s economy grew 0.7 percent in the same quarter, with inflation at 3.5 percent and interest rates at 7.75 percent.

Colombia expanded 0.5 percent, with inflation at 4.9 percent and rates at 9.25 percent. Argentina recorded a 5 percent annual increase in May activity, although monthly numbers stagnated, and inflation still exceeds 36 percent annually.

Brazil therefore continues to grow, but at a pace that lags regional peers. Services provide the main support, while agriculture reverses earlier gains. High rates anchor inflation expectations but limit stronger expansion.

The balance between protecting industries with tariffs and containing consumer costs remains fragile. The official GDP report for the second quarter will be released by the Brazilian Institute of Geography and Statistics on September 2.

Until then, the IBC-Br results give the clearest view of an economy adjusting to high interest rates, trade barriers, and slowing momentum, while still managing modest but positive growth.

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