(Continued from Trip Notes (part 2))
The discussions in the conference centered on the possible responses of the Global South, including Brazil, to the shocks emanating from higher US tariffs. The main conclusions with respect to the possible response from the likes of Brazil and other developing economies to these headwinds may be summarized by the following points:
- Coalition/alliance approach: there is likely to be more activism in forming coalitions and alliances across the Global South; the rise in US tariffs may result in a higher importance of South-South trade in the world economy
- Regionalism as a key gateway to building South-South platforms: for Latin America, apart from the greater role of regional integration, the importance of other regional markets in the developing world, most notably Asia, is likely to increase on the back of global trade tensions;
- Greater use of industrial policy mechanisms on the part of developing economies, with WTO rules looking increasingly vulnerable in the face of rising protectionism and ad hoc trade practices
The local newspapers are sounding alarm bells regarding the effects of higher US import tariffs on the economic growth performance of Brazil and the global economy. For Brazil the scale of the tariff increase (at 10%) is notably less sizeable than for the likes of such Asian economies as China or Vietnam, which may be partly due to the fact that contrary to China, Brazil recorded a deficit in 2024 in trade in goods with the US[1].
More specifically, according to US trade statistics, American total goods trade turnover with Brazil reached USD 92.0 billion in 2024, with US goods exports to Brazil in 2024 amounting to USD49.7 billion, up 11.3% from 2023. US goods imports from Brazil in 2024 reached USD42.3 billion, up 8.3% (USD3.2 billion) from 2023. As a result, the US goods trade surplus with Brazil was $7.4 billion in 2024, a 31.9% increase ($1.8 billion) over 2023[2]. The size of the US surplus rises to more than USD 28 bn for trade in goods and services in 2024 and according to the authorities of Brazil, the country does not exclude the possibility of appealing to the WTO against recent US tariff increases[3].
Overall, as is the case with most other Latin American economies, exports do not constitute the main engine of GDP growth – in Brazil the ratio of exports to GDP in 2023 was 18.2% though it has increased compared to 2019 when the ratio stood at 14.1% of GDP[4]. The relatively high degree of introvert orientation of trade policy may limit the economy’s susceptibility to rising protectionism in the global economy, though it also places limitations on the role of exports as a significant driver of economic growth.
The recent trends in the real sector point to positive dynamics in services and a slowdown in manufacturing. The S&P Global PMI Brazil Services Business Activity Index exhibited to a rise from 50.6 in February to 52.5 in March on the back of improvements in employment, demand conditions, output and sales[5]. At the same time, the corresponding index for the manufacturing sector showed a drop from 53.0 in February to 51.8 in March, though the index remained in the positive growth territory of above 50.0 for the fifteenth month in a row. Expanding new orders and increases in factory production accounted for the overall positive dynamic in the manufacturing sector[6].
On the whole, Brazil’s output expanded by 3.4% in 2024 on the back of social transfers and household consumption growth, with 2025 GDP projected by the World Bank to moderate to 2.2% due to “higher interest rates and an adverse external environment weigh on investment, and household consumption slows due to rising household debt, lower transfers, and diminishing labor market gains”[7]. Consumer confidence indicators showed some recovery in March 2025[8], with cursory observations of consumer activism in San Paulo suggestive of relatively benign dynamics.
One of the key vulnerabilities for Brazil on the growth front is the high level of interest payments on public debt that are among the highest in the world. According to the IMF, in 2023 Brazil paid 8.2% of GDP for public debt interest payments compared to 6.22% of GDP in Mexico, 6.82% of GDP in Pakistan, more than 5.4% of GDP in India and more than 5% of GDP in South Africa[9]. The high interest payments substantially narrow the scope for higher investment outlays (including into the much needed public infrastructure), but at the same time this also leaves substantial scope for the improvement in the fiscal position to translate into lower interest payments and growth (see our earlier article on the fiscal performance of Brazil from 2024).
Apart from the high level of interest payments per se, there is also the growing share of debt that is sensitive to short-term interest rate changes – according to the Treasury, 62.1% of public debt will be sensitive to short-term interest rate fluctuations in 2026 compared to around 50% in 2021 and a projected share of 57.6% in 2029[10]. The high share of floating rate debt issued by the authorities as well as the hikes in the policy rate by the Central Bank (that signaled more rate hikes in May 2025 after notable increases in the preceding months) raise the pressure for greater fiscal adjustment on the revenue/expenditure side as well as such measures as greater privatization of state assets and the moderation in the debt burden at the sub-federal level[11].
The above suggests that another facet to Brazil’s debt conundrum is the tension between fiscal and monetary policies as the interest rate hikes of the Central Bank make it more difficult for the government to grapple with interest rate payments. In the coming years, these tensions may moderate if the Central Bank does succeed with disinflation efforts – short-term, however, the latest inflation reading revealed an increase in the 12-month rate to 5.5% in March from 5.1% in February, with exchange rate depreciation adding to pressures on the inflation front[12]. The World Bank expects inflation to gradually converge to 3.8% by 2025, within the Central Bank’s target of “3% plus/minus 1.5%”[13].
In the face of these challenges, the government is seeking pathways out of the debt trap – the general government budget deficit was brought down to 0.3% of GDP in 2024 from 2.4% of GDP in 2023, with World Bank projections showing a surplus of 0.3% of GDP by 2027. With declining levels of the primary deficit, market analysts have been adjusting downward (albeit slowly) their near term projections of the budget deficit[14].
In the end, the key macroeconomic test for Brazil is the fiscal challenge of bringing down the budget deficit and public debt to sustainable levels. This will call for a whole array of measures, from structural policies to boost growth (and thus deliver the “grow out of debt” strategy) as well as reductions in interest rate payments via reigning in the fiscal deficit and bringing down inflationary expectations. The reduction in the fiscal deficit needs to prioritize cuts in inefficient spending, something that may then generate positive growth effects – without such measures excessive reliance on tax increases to bridge the fiscal gap may backfire with respect to growth and productivity.
At the same time growth has ample potential to expand in all of the main sectors of the economy – in agriculture, services and manufacturing – most notably with respect to investment and exports. The latter could benefit from greater trade openness of Brazil to the economies of the Global South – particularly given the likely South-South trade liberalization and the re-orientation of trade flows triggered by US tariff hikes. Such a strategy could also dovetail Brazil’s evolving position on the international arena as one of the leading economies in the Global South that delivers a significant contribution to the resolution of key global issues related to climate change, energy sustainability and indebtedness.
Like the US in North America, Brazil in South America accounts for the lion’s share of the regional GDP – in fact, across the three main regions of the Global South (Africa, Asia and South America) Brazil has the highest share of regional output. Like the US, Brazil is also relatively well positioned geographically, away from the epicenters of geopolitical rifts in Europe or Asia – something that may enable it to further strengthen its neutrality and mediation credentials. A strategy of greater trade openness with respect to the economies of the developing world could provide the much-needed growth impulse to Brazil’s economy as well as boost its credentials of one of the leaders of the Global South on the international stage.
[1] https://agenciabrasil.ebc.com.br/en/economia/noticia/2025-04/brazil-does-not-rule-out-appealing-wto-against-us-tariffs#:~:text=%E2%80%9CAccording%20to%20US%20government%20data,globally%2C%E2%80%9D%20the%20statement%20read.
[2] https://ustr.gov/countries-regions/americas/brazil
[3] https://agenciabrasil.ebc.com.br/en/economia/noticia/2025-04/brazil-does-not-rule-out-appealing-wto-against-us-tariffs#:~:text=%E2%80%9CAccording%20to%20US%20government%20data,globally%2C%E2%80%9D%20the%20statement%20read.
[4] https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?locations=BR
[5]https://www.pmi.spglobal.com/Public/Home/PressRelease/d69204a7142d4afc96c88cfeeac36081
[6] https://www.pmi.spglobal.com/Public/Home/PressRelease/a3bdb492f8b14602940ce99464713112#:~:text=The%20S%26P%20Global%20Brazil%20Manufacturing%20Purchasing%20Managers’%20IndexTM%20(PMI),the%20health%20of%20the%20sector.
[7] https://www.worldbank.org/en/country/brazil/overview
[8] https://www.riotimesonline.com/brazils-wealthy-drive-small-consumer-confidence-rebound-as-others-struggle/
[9] https://www.imf.org/external/datamapper/ie@FPP/BRA?zoom=BRA&highlight=BRA
[10] https://www.reuters.com/world/americas/brazil-acknowledges-record-debt-risk-this-year-need-fiscal-consolidation-2025-04-16/
[11] https://valorinternational.globo.com/economy/news/2025/04/15/brazil-sets-rules-for-states-to-federalize-assets-under-debt-plan.ghtml
[12] https://www.reuters.com/world/americas/brazils-inflation-slows-march-annual-rate-remains-under-pressure-2025-04-11/
[13] https://www.worldbank.org/en/country/brazil/overview
[14] https://www.infomoney.com.br/economia/analistas-reduzem-projecao-de-deficit-primario-em-2025-de-r-80-bi-para-r-75-bi/
Yaroslav Lissovolik, Founder, BRICS+ Analytics
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