Fitch Lifts Brazil 2026 Growth to 2.1%, Trims 2027 on Fiscal Fade

Brazil · Economy

A stronger-than-expected start to the year has earned Latin America’s largest economy a growth upgrade for 2026 — but Fitch warns the lift will not carry into the year after the vote.

Why Fitch raised the Brazil 2026 GDP forecast

Fitch Ratings lifted its growth forecast for Brazil this year to 2.1%, up from the 1.9% it projected in March, in the quarterly Global Economic Outlook it released on Thursday. The revision follows a robust first quarter, in which the Brazilian economy expanded 1.1% against the previous three months — its strongest single-quarter reading in four quarters — on the back of agriculture, the extractive sector, fixed investment and household consumption.

The agency pointed to several supports for domestic demand. Unemployment sits at a historic low and real wages continue to rise, sustaining consumption. Fitch also credited the tax reform approved in 2025, which reduced the burden on lower-income Brazilians while raising it on higher-income households, and noted the dynamism of the agriculture and mining sectors. Brazil grew 2.3% in 2025, so the 2026 call implies a modest deceleration rather than a slump, leaving the country among the better-performing major Latin American economies even as the region as a whole grows slowly.

The 2027 cut and the election-year fade

The other side of the revision is a downgrade for 2027, to 1.7% from 1.8%. Fitch attributes the softer outlook to a diminished fiscal impulse once the October 2026 general election has passed — the familiar pattern in which government spending and stimulus run hotter in an election year and then cool. The agency expects growth to recover slightly to 2.0% in 2028. The two-step revision captures a recurring feature of the Brazilian cycle: activity that is front-loaded by the political calendar before reverting closer to the economy’s estimated potential.

Fitch flagged several sources of uncertainty around that path, including the political outlook ahead of the vote, the El Niño weather phenomenon, and the global energy shock stemming from the conflict in the Middle East. Each, it argued, reinforces a more cautious stance from Brazil’s central bank.

Inflation, the Selic and the real

On prices, Fitch struck a hawkish note. It expects Brazilian inflation to climb to 5% by the end of 2026 — above the upper bound of the central bank’s tolerance band, which is set at 4.5% around a 3% target — before returning gradually toward 4% in 2027. The agency cited the mid-May reading of the IPCA-15 preview index, which pointed to continued price acceleration, alongside rising inflation expectations.

That outlook feeds directly into the rates call. Fitch now sees the Selic benchmark rate falling only to 13% by end-2026, up from the 12% it had previously expected, and to 10.5% in 2027 — a forecast unchanged from March. The implication is a slower, more cautious easing cycle than markets had been pricing earlier in the year. Fitch added that the eventual loosening in Brazil, set against a US Federal Reserve that is expected to hold rates for longer, should pressure the real into a gradual weakening against the dollar, with persistent fiscal concerns compounding the effect.

The revision lands alongside a broader repricing of Brazil’s near-term prospects. The agency trimmed its global growth forecast for 2026 to 2.4%, citing higher oil prices as a headwind to world activity, even as it raised calls for China and other Asian exporters on strong technology-driven trade. For Brazil, a net oil exporter, the energy shock cuts both ways — lifting export revenue while feeding the domestic inflation that is keeping monetary policy tight.