Economic activity slows following record-breaking harvest

Weak IBC-Br reading triggers GDP downgrades amid concerns over Trump tariffs

07/15/2025

Brazil’s economy showed clearer signs of cooling in May, following the boost from a record-breaking harvest this year. The slowdown comes as economists weigh the mixed impact of announced fiscal stimulus measures against potential fallout from the tariff shock led by U.S. President Donald Trump.

The Central Bank’s Economic Activity Index (IBC-Br), often viewed as a GDP proxy, fell 0.74% in May from April on a seasonally adjusted basis. The result, released on Monday, was below even the most pessimistic forecasts compiled by Valor Data—Valor’s financial data provider—which ranged from a 0.5% contraction to a 0.5% expansion, with a median of -0.1%. The unexpected drop has prompted analysts to revise down their 2025 growth forecasts.

In April, the IBC-Br had posted a marginal increase of 0.05% (revised from 0.16%). Over the 12 months through May, the index rose 4.04%.

“The weakness in activity was broad-based, with monthly declines in agriculture (-4.25%) and non-agricultural sectors (-0.31%). Industry contracted 0.52% while services were flat, up just 0.01%,” wrote Alberto Ramos, chief economist for Latin America at Goldman Sachs, in a note to clients. According to his estimates, the statistical carryover for second-quarter growth dropped from 0.83% in April to 0.16% in May.

Rafaela de Sousa, an economist at BuysideBrazil, pointed out that this was the first monthly decline of the year for both the overall index and its non-agricultural component, reinforcing the narrative of weak activity in the second quarter. She warned that this is an important risk to monitor, given the potential impact of the U.S. tariffs.

BuysideBrazil maintains a 2025 GDP growth forecast of 2.3% but estimates that tariffs could affect up to 30% of Brazil’s exports to the U.S. Under that scenario, the economy could lose as much as 0.6 percentage point of GDP over a 12-month period, with most of the drag occurring in 2026, said Ms. de Sousa.

XP Investimentos also sees downside risk to its current forecast of 2.5% GDP growth. According to the firm, Mr. Trump’s tariffs alone could shave up to 0.3 percentage point from growth this year.

Despite the recent data, economist Rodolfo Margato said the labor market and fiscal stimulus, whose effects have yet to show up in the numbers, should help prevent a sharp downturn in domestic activity. He calculates that May’s IBC-Br result leaves a 0.2% statistical carryover for the second quarter, and expects the index to close the period with a 0.3% gain, close to XP’s GDP projection of 0.4%.

Oxford Economics revised its 2025 growth forecast to 2.2% from 2.5%. Still, economist Felipe Camargo does not foresee a major impact from the tariff dispute.

“Our analysis is that the effect on growth will be limited, even if Brazil retaliates. We expect the two countries to reach an agreement in the coming months, though any deal is likely to involve tariffs higher than those in the pre-Trump era,” said Mr. Camargo.

Similarly, ABC Brasil downgraded its GDP forecast for this year to 2.3% from 2.5%. “What stood out to us in the monthly and quarterly breakdown of the IBC-Br was the weaker performance of cyclical sectors, those more sensitive to interest rates,” said Daniel Xavier, the bank’s chief economist. He noted that the services and industrial sectors, which faltered in the May data, also showed a deterioration in FGV’s business confidence index, suggesting further weakness may be ahead.

In terms of monetary policy, Mr. Xavier added that the IBC-Br reading should be well received by the Central Bank, as it aligns with the institution’s scenario of 2.1% growth this year while also indicating cooling in cyclical sectors. “Nonetheless, the output gap remains inflationary, and for that reason, the Monetary Policy Committee (COPOM) is likely to maintain a restrictive stance and keep interest rates at a tight level for an extended period,” he said.

*By Marcelo Osakabe and Gabriel Shinohara  — São Paulo and Brasília

Source: Valor International

https://valorinternational.globo.com/

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The Current Situation of Social Media in Brazil: Limits and Regulations.

MURRAY ADVOGADOS

 

The Current Situation of Social Media in Brazil: Limits and Regulations.

 

By Alexandre Tuzzolo Paulino.

 

The rise of social media as tools for communication and information in Brazil has profoundly transformed social, political, and institutional relationships. This shift has generated a range of legal challenges, particularly regarding freedom of expression, data protection, and liability for published content.

Currently, Brazil does not have a specific and consolidated law that fully regulates the operation of social media. Existing legislation is fragmented and relies on norms such as the Brazilian Internet Bill of Rights (Law No. 12,965/2014), which establishes principles for internet use, such as neutrality, privacy, and user accountability. Additionally, the General Data Protection Law (LGPD – Law No. 13,709/2018) governs the processing of personal data, directly affecting platforms that collect and use user information. Under discussion in the National Congress is the so-called “Fake News Bill” (Bill No. 2630/2020), which seeks to establish a legal framework to combat disinformation on digital platforms.

The current landscape highlights the urgency of establishing a balanced legal framework that ensures freedom of expression and technological innovation, while also setting clear limits on the circulation of content harmful to public discourse and the democratic rule of law. The challenge is to create effective regulations without leading to censorship or digital authoritarianism.

Despite progress in legislative debate, the regulatory gap has been partially filled by rulings from the Federal Supreme Court (STF), which has ordered the removal of content, the suspension of user accounts, and the imposition of liability on platforms.

In June 2025, the Federal Supreme Court (STF) ruled that digital platforms can be held liable for illegal content published by users, even without a prior court order, in cases involving serious crimes, hate speech, racism, homophobia, Nazi or fascist ideologies, and other forms of discrimination. This decision reinterprets Article 19 of the Marco Civil da Internet, which previously held platforms liable only after a specific judicial order for content removal.

It is undeniable that combating disinformation and digital violence is a pressing imperative of our time. However, preserving democracy requires institutional balance and respect for due legal process, to avoid lapsing into institutionalized censorship, which would ultimately undermine the very legitimacy of the institutions that are meant to be protected.

July 2025

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Brazil could partner with U.S. clients to negotiate tariffs

Former World Bank director Carlos Braga opposes retaliation strategy and warns of weak BRICS connection, yet rules out “economic collapse”

 

 

 

07/14/2025

Carlos Primo Braga, associate professor at Fundação Dom Cabral (FDC) and former director of Economic Policy and Debt at the World Bank, believes Brazil should ally itself with U.S. industries reliant on Brazilian imports to strengthen its negotiating position with Donald Trump’s administration.

Mr. Braga opposes retaliation and sees room for negotiation, despite the political undercurrents behind the tariff decision announced last week. Because the move was driven by non-economic motives, he also dismisses any meaningful connection between Trump’s actions and Brazil’s membership in the BRICS bloc.

“Obviously, economic reasoning doesn’t explain the tariff hike. From an economic standpoint, the BRICS summit didn’t promote a confrontational agenda. That’s why I see a weak connection when people claim Trump’s action reflects the rise of BRICS,” he said.

Mr. Braga argues that sectors like the U.S. steel industry—which imports semi-finished steel from Brazil as a key input—could be natural allies in lobbying against the 50% tariff. He said the U.S. automotive industry may also have a vested interest in resisting the tariffs, given the potential for rising input costs that could undermine competitiveness.

He criticized what he described as a shift in U.S. trade policy. While in the past the country was an architect of global trade governance, today it is “undermining that very system,” he said, referencing the weakening of the World Trade Organization (WTO)—a trend that accelerated under Mr. Trump but was also seen during the Biden and Obama administrations.

“Mr. Trump simply doesn’t believe in multilateral solutions. Since January, WTO rules, such as the most-favored-nation principle, have been under attack, and he doesn’t care. What will replace this system? The jungle and the law of the strongest. That will undoubtedly generate more tension,” he warned.

Depending on how Trump’s tariff policy evolves toward China and the European Union, Mr. Braga sees potential for mounting domestic opposition and lobbying in the U.S. Congress. “This is also a path for Brazil, working with U.S. industries that depend on Brazilian imports,” he suggested.

Brazil is the second-largest exporter of steel to the U.S. While other countries could theoretically take over the market, Mr. Braga noted that supply disruptions and price hikes would be inevitable in the U.S. “That will reduce the competitiveness of American industry, and I guarantee they are not happy about these tariffs,” he said.

Mr. Braga cautioned that retaliation would be the wrong move for Brazil and could cause more harm than good. While he acknowledged the legitimacy of Brazil’s Economic Reciprocity Law, which allows for countermeasures, he believes it’s not the right strategy for now.

“Retaliation definitely won’t help. It will raise U.S. import costs and increase prices for Brazilian consumers—both people and businesses. We need to stay calm and negotiate,” he urged.

Mr. Braga is also skeptical about any action at the WTO, arguing that although Brazil could win a case on legal grounds, the ruling would have no practical effect.

“Brazil could file a case at the WTO and would certainly win since the tariffs violate WTO rules. But the U.S. would appeal, and with the appellate system paralyzed, the case would remain in limbo without resolution,” he explained.

Although not optimistic about the negotiations, Mr. Braga noted there are areas where the U.S. remains interested in fostering positive relations with Brazil, citing the Alcântara space base partnership as one example.

While he expects some economic impact from the 50% tariffs, Mr. Braga dismissed fears of a broader crisis. “Exports to the U.S. represent about 2% of Brazil’s GDP. It’s not a disaster, the world isn’t ending, but there will definitely be consequences, especially for the most affected companies,” he said.

Mr. Braga highlighted that the greater concern for Brazil’s trade balance lies in the fact that exports to the U.S. are more heavily weighted toward manufactured goods. For agricultural products and commodities, Brazil can redirect exports to other markets.

“For manufactured goods, it’s more complicated. So, it will depend heavily on how Brazil manages the next steps in these negotiations,” Mr. Braga concluded.

*By Lucianne Carneiro — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Trump tariffs, EU law disrupt Brazil’s agricultural geopolitics

Shifts in global trade threaten competitiveness and cloud sector planning

 

 

 

07/14/2025

As Brazil’s agribusiness prepares to comply with the European Union’s anti-deforestation law set to take effect in January 2026, the sector now faces a new challenge: a 50% tariff on exports to the U.S. Experts in foreign trade and diplomats with experience in trade negotiations warn that this “perfect storm” could make exports to two of Brazil’s largest markets— the U.S. and the EU—unviable or severely undermine their competitiveness.

According to Ambassador Rubens Barbosa, president of the Institute of International Relations and Foreign Trade (Irice), trade tensions with the U.S. are more serious than the effects of the EU regulation and present a more immediate concern for Brazil.

He notes that in the dispute with the U.S., agribusiness is not the most impacted sector of the Brazilian economy. Mr. Barbosa believes industries like aviation, aluminum, and steel, which export higher value-added and high-tech products, stand to lose more, while agribusiness remains a strong commodity exporter.

“There will be consequences, but we don’t yet know what tariff level Brazil will negotiate with the U.S. Even if it ends up above the previous 10%, we could still remain competitive in agricultural exports, but we’ll need to negotiate,” Mr. Barbosa told Valor.

Still, there are products whose exportation could become unfeasible, such as beef, where the price per tonne could jump by about $3,000, according to projections from Agrifatto. Coffee, orange juice, and eggs are also expected to see shipments severely impacted.

The U.S. remains one of Brazil’s key trade partners, accounting for 12% of exports and 15.5% of total imports in 2024. “If Brazil escalates retaliation, as China did, it could backfire. We have more to lose than gain,” warned Cicero Zanetti de Lima, a researcher at FGV Agro, the agribusiness studies center at Fundação Getulio Vargas.

Roughly 30% of Brazilian exports to the U.S.—about $12.1 billion—come from agribusiness. Conversely, agricultural imports from the U.S. represent just 2.5% of Brazil’s total, primarily inputs. Mr. Lima explained that more expensive U.S. inputs could push up domestic food prices in Brazil.

“Another serious issue is that, with the tariff in place, it will be nearly impossible to divert products like coffee and orange juice originally bound for the U.S. to other markets. This is a red flag,” he said.

Like the U.S., the EU is also one of Brazil’s biggest buyers of coffee and orange juice. With rising protectionist signals, the European Commission has classified Brazil as a standard risk country under the EU Deforestation Regulation (EUDR), which bans imports of products originating from both illegal and legally permitted deforestation under Brazilian law.

There is widespread uncertainty about the required documentation and how the law will be enforced. Rubens Ricupero, a diplomat and former finance minister, highlighted that Brazil’s agribusiness is vulnerable on deforestation issues. He argued this should be an opportunity to crack down on illegal deforesters and reduce Brazil’s risk classification under the EU law. “The sector itself should take the lead in showing it is serious about this issue,” he said.

Because Brazil was rated as a standard risk country under the EUDR, its products are likely to be deprioritized in favor of those from lower-risk suppliers, warned Agroicone managing partner Rodrigo Lima.

“Importers will naturally prefer sourcing from countries with the lowest possible risk to avoid EU fines,” he said. “Even if Brazilian coffee is excellent, buyers may opt for lower-risk suppliers,” he added. Vietnam, for example, is a major coffee supplier classified as low risk.

Marcos Matos, general director of the Brazilian Coffee Exporters Council (Cecafe), said coffee industry representatives traveled to the EU in May after the EUDR risk classification was announced, lobbying for risk to be assessed by region rather than nationally. “We see there is room to educate buyers about Brazilian coffee and the country’s regional diversity,” he said.

In the beef supply chain, competitors like Uruguay have been classified as low risk, while Brazil’s standard risk rating is seen as “unfair” by Caio Penido, president of the Mato Grosso Institute of Beef (Imac), who recently visited Brussels to discuss the issue.

*By Nayara Figueiredo — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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China expands in consumer goods, now supplies 26% of Brazil’s imports

Cars, electronics and home appliances drive Chinese dominance as U.S. loses share

 

 

 

 

07/14/2025 

Brazil’s reliance on American goods has dropped to near the lowest level in a decade, as China strengthens its dominance across a wide range of imports, including consumer products like cars, motorcycles, freezers, and stoves.

From January to June, Brazil imported $21.7 billion from the United States, up 11.5% from the same period in 2024. But this only accounted for 16% of total imports, the second-lowest share in the last ten years, just above the 15.5% in the first half of last year. In 2022, the U.S. share was 19.3%.

Amid China’s search for new markets under the threat of U.S. President Donald Trump’s tariffs, the country exported $35.7 billion to Brazil in the first six months of this year: 26.3% of Brazil’s total imports, a record high and up 22.2%.

China became Brazil’s top car exporter last year, even after Brazil imposed tariffs on electric vehicles. Chinese dominance has also expanded into small appliances and electronics, growing in strategic importance for Beijing.

Despite the introduction of import tariffs last year—starting at 10% in early 2024 and rising to 18% now—pure electric vehicles from China remain Brazil’s most imported cars.

In the first half of this year, Brazil imported $2.05 billion worth of vehicles from China, down from $2.58 billion in the same months of 2024 but up 713% from 2023. Argentina, once a key supplier, trailed far behind at $844 million.

Between 2022 and 2025, Brazil rose from China’s 17th to its sixth-largest vehicle export market, now representing 5.6% of the total.

This trend is mirrored in household appliances. During the second-hottest summer in Brazil’s history—second only to 2024—air conditioner imports from China jumped 67% to $498.5 million in the first half of 2025, after already surging 64% in the same period of 2024. Brazil moved from the 15th to the seventh-largest buyer of Chinese air conditioners from 2022 to 2025.

Imports of Chinese-made vacuum cleaners hit $51 million, up 26% from a year earlier.

Even when values declined, China remained the leading supplier. Imports of electric stoves, grills, and baking pans totaled $98.2 million—down from $113.7 million in 2024—but Germany, the second-largest supplier, shipped just $2.3 million.

Brazil imported $65.6 million in fully assembled televisions from China in the first half. Hong Kong ranked second at $7.1 million. Mobile phone imports from China, including parts and components, totaled $650.6 million, with Vietnam in second place at $291.5 million.

Chinese government trade data confirms Brazil’s growing importance. Between 2022 and 2025, Brazil climbed from 17th to sixth among China’s TV buyers, and from 19th to sixth in irons. It also rose from 16th to 12th in electric stoves and grills.

Brazil’s appetite

Lia Valls, professor at Rio de Janeiro State University (UERJ) and researcher at the Brazilian Institute of Economics of Getulio Vargas Foundation (FGV Ibre), said Brazilian purchases of Chinese goods are rising much faster than total imports. Volume growth, she explained, is especially striking.

In the 12 months through May, Brazilian imports from China rose 25.7% in value, data from the Foreign Trade Secretariat (SECEX) show. The FGV Ibre’s Foreign Trade Indicator (Icomex) puts volume growth at 37.2%.

By comparison, total Brazilian imports rose 12.2% in value and 16.7% in volume. From China alone, volumes jumped 35% in the first five months of 2025, versus a 12.4% increase in total imported volume.

Yet average prices of Chinese goods are falling. Icomex shows a drop of 8.1% in average import prices from China between January and May. Total import prices fell just 2.6%.

U.S. imports, on the other hand, rose 13% in volume over the same period, while prices were nearly flat, edging up just 0.2%. The U.S. remains Brazil’s second-largest supplier.

In February, Brazil imported a large offshore oil platform from China, classified as a non-recurring item. But Icomex data show the surge in Chinese import volumes is a long-term trend.

Between 2015 and 2024, Brazilian imports of Chinese goods by volume rose 146.2%. U.S. volumes increased just 1.1%, and imports from Argentina rose 21.9%. Meanwhile, average prices of Chinese imports fell 14.4%, while U.S. prices rose 50.9% and Argentine prices 7.3%.

Since 2006, China’s import volume to Brazil has multiplied by seven, while its average export price rose just 14%.

Trade surge

José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), said imports have proven more resilient than expected this year, partly due to China’s role.

The import surge had a negative impact on Brazil’s GDP in the first quarter, despite a record grain harvest, said Livio Ribeiro, partner at BRCG and researcher at FGV Ibre. “It was very unusual. Even with the bumper crop, net trade dragged down GDP, which was unexpected.”

Data from Brazil’s national statistics agency IBGE show that exports of goods and services rose 2.9% in the first quarter versus the previous three months (seasonally adjusted), but imports climbed 5.9%.

SECEX figures show that China’s share of Brazilian imports rose from 23.3% in the first half of 2024 to 26.3% in the same period this year.

Regardless of the direction of Mr. Trump’s tariff policies, Mr. Castro said, China will continue expanding its export markets. “The world is adapting to this new China, a country that produces everything, competes in everything, and offers competitive prices in everything.”

Mr. Ribeiro said the future of Chinese imports in Brazil will depend less on the U.S. president’s policies and more on the strength of domestic lobbying efforts. “Brazil’s lobbies are stronger than average. Chinese oversupply could flood other countries like Chile or Colombia more than Brazil, where local lobbies are less organized. So Brazil is unlikely to face a full-blown flood of Chinese goods.”

The global tariff debate, he said, has thrown “some sand in the gears of global trade.” China is also struggling to boost domestic consumption and is seeking new markets for its industrial surplus.

Chinese carmakers gain ground

Tulio Cariello, research director at the Brazil-China Business Council, said China’s lead in car exports to Brazil is unsurprising. He noted that import tariffs for electric and hybrid vehicles will continue to rise through next year.

In 2025, electric cars without combustion engines were taxed at 18% through June. The rate rose to 25% this July and is scheduled to reach 35% in July 2026.

New Chinese brands such as GAC, Zeekr, Omoda & Jaecoo, and Leapmotor have followed BYD and GWM into the Brazilian market. “They realized there’s a market for EVs in Brazil. BYD created a positive image for Chinese cars, which are now almost synonymous with electric vehicles,” Mr. Cariello said.

Mr. Ribeiro said higher tariffs haven’t significantly curbed demand for Chinese EVs, which tend to be more expensive and less sensitive to price increases. “Tariffs reduced margins, but that wasn’t fully passed on to consumers. And even if it were, they’d still be cheaper than German or Swedish models.”

Chinese dominance extends to appliances and production chains

In appliances and white goods, Mr. Cariello noted that China’s dominance reflects years of industrial investment. When China opened to foreign investment, many U.S., European, and Japanese firms set up production there. “The Chinese learned, began making their own products, and started competing with global brands. In some cases, like air conditioners, they’re already ahead.”

He added that fierce competition among Chinese manufacturers helps keep prices low.

Chinese companies, said Mr. Castro of AEB, are quick to develop new products and win over markets. Data from SECEX illustrate this: Italy remains Brazil’s top dishwasher supplier, with shipments rising from $42 million in the first half of 2022 to $83 million in the same period this year. But China is catching up fast, doubling its exports to Brazil from $16.6 million to $51.6 million in the same period.

Mr. Cariello pointed out that while China leads in many categories, Southeast Asian countries are gaining ground as Chinese companies shift production for cost savings. In cell phones and parts, for instance, Vietnam and Malaysia follow China. For air conditioners, Thailand and Singapore are next.

“Each case is different, but there’s no doubt China will remain the dominant supplier in many sectors,” he said. “Chinese companies not only ship final products, they also produce key components. Smartphones and computers are good examples. China is involved in every step of the value chain, from critical minerals to components and design. One way or another, China is always present.”

*By Marta Watanabe and Álvaro Fagundes — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Agricultural bonds to remain top rural credit source despite new tax

Bonds known as LCA expected to exceed R$700bn by 2026 under Crop Plan

 

 

07/11/2025

Agribusiness Credit Bnds (LCAs) are set to remain the leading funding instrument for Brazil’s rural credit programs in the 2025/26 season, even with a proposed income tax on their returns. According to government projections, the outstanding volume of LCAs is expected to reach R$728 billion by May 2026, up from the current R$651 billion. Of this total, about 60% is earmarked for financing the agricultural sector.

The 2025/26 Crop Plan outlines R$594.4 billion in total rural credit, with LCAs accounting for R$328 billion, or 55% of the funding. In the 2024/25 cycle, they represented 43% of the total.

Currently, income earned from LCAs is exempt from taxation. However, the Ministry of Finance has proposed a 5% tax on earnings, included in Provisional Presidential Decree 1,303/2025, which still requires Congressional approval. If passed, the new rule would take effect in 2026. Despite the tax, Gilson Bittencourt, deputy secretary for agricultural policy and agro-environmental business at the Ministry of Finance, believes LCAs will remain attractive to investors.

“The Finance Ministry’s proposal to impose a 5% tax maintains LCAs’ advantage over other fixed-income instruments while also helping to fund interest rate subsidies in rural credit,” said Mr. Bittencourt.

He noted that high interest rates, particularly the current Selic level near 15% per year, made it unfeasible to keep loan interest rates unchanged in the new Crop Plan. “We wanted to avoid raising rates, but the numbers had to add up,” Mr. Bittencourt said during a media briefing after the plan’s release earlier this month. “In agriculture, the lower the rate, the better. But worse than a slightly higher rate is having no funds at all. That was the government’s main concern.”

Mr. Bittencourt also acknowledged that a drop in the Selic rate could reduce demand for LCAs, which are currently among the most profitable investment options. Nonetheless, investor familiarity with LCAs may help sustain demand even in a lower-rate environment.

Looking ahead, Mr. Bittencourt said the “ideal scenario” for agricultural policy would be a Selic rate of 8.5%—a projection that was common among economists and the government earlier in 2024. In such a scenario, LCAs could be issued at 90% of the benchmark rate plus a spread of up to 3%, resulting in single-digit loan interest rates for market-based credit lines. This would also increase the incentive for banks to use their own funds in rural lending, further easing the fiscal burden of subsidies.

However, Ivan Wedekin, a consultant and former secretary of agricultural policy at the Ministry of Agriculture, warned that taxing LCAs could hurt their competitiveness relative to other instruments, such as bank-issued CDBs, which are already taxed. He also voiced concerns about market confidence.

“Taxing one type of instrument sets a precedent. There’s now a risk that the government could raise the tax from 5% to 10% or even revoke exemptions altogether. That creates uncertainty across the market,” Mr. Wedekin told Valor.

The Agricultural Parliamentary Front (FPA) has also criticized the proposed taxation, echoing concerns that it could undermine trust in rural credit mechanisms.

*By Rafael Walendorff, Globo Rural — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Ex-diplomat urges diplomacy as Trump targets Brazil with tariffs

Former U.S. ambassador Carlos Pascual warns that American president should weigh Brazil’s strategic role in Latin America

 

 

07/11/2025 

Carlos Pascual, former U.S. ambassador to Ukraine and Mexico, said President Donald Trump must consider Brazil’s strategic importance to Latin America when shaping trade relations. While Brazilian President Lula has signaled the possibility of reciprocal tariffs, Mr. Pascual told Valor that the best course of action is to pursue constructive dialogue through diplomatic channels.

“The United States needs to keep in mind that Brazil is the leading power in Latin America, playing a crucial role in the region and in key sectors such as critical minerals,” said Mr. Pascual, who currently serves as vice president for energy and international affairs at S&P Global.

According to Mr. Pascual, reciprocal tariffs from Brazil would be damaging for both countries. Still, he acknowledged that negotiations have become more complicated due to the letter from Mr. Trump, which blends political grievances with trade issues. In the document—which opens by defending former president Jair Bolsonaro—Mr. Trump describes Brazil’s treatment of Bolsonaro as a “global embarrassment.”

“Trump has his own way of imposing tariffs,” Mr. Pascual noted. “He didn’t choose a more traditional mechanism like a quota-tariff system, where the rate increases based on import volume. This was a political judgment. A good diplomatic effort is needed so that both sides can explain their rationale and work toward a mutually beneficial solution.”

The 50% tariff on all Brazilian products, announced by Mr. Trump on Wednesday (9), came as a surprise. Ms. Pascual, however, said the move fits with Mr. Trump’s pattern of using tariffs as leverage. “Trump has used tariffs to advance other political objectives, claiming they support the U.S. economy. He’s even used them in immigration negotiations. But he won’t succeed without diplomatic steps,” he said.

In the letter to Brasília, Mr. Trump listed what he called “a fundamental violation of American free speech” as one of the reasons for his decision. Experts believe this refers to Brazil’s efforts to regulate Big Tech. They point to recent episodes, including the suspension of X (formerly Twitter) in Brazil after noncompliance with court orders, and fines imposed on the platform owned by Elon Musk. Another example was the February suspension of the video-sharing platform Rumble by Brazil’s Supreme Court, ordered by Justice Alexandre de Moraes.

On Thursday afternoon (10), President Lula said Brazil may resort to the Law of Reciprocity if negotiations fail to yield results. He criticized Mr. Trump’s letter, saying it reflected a “total lack of understanding” of the commercial relationship between the two nations.

Although President Lula has expressed a preference for negotiation, Mr. Pascual believes it is too early to tell whether diplomacy will succeed. “There are several areas where talks could move forward. Brazil might try to negotiate a delay in the implementation of the tariffs, which Trump has slated for August 1,” he said.

In the meantime, Mr. Pascual warned that the immediate impact—aside from increased global uncertainty—could be a slowdown in investment and trade between the two countries. “Until there’s more clarity about the direction of the relationship, we may see reduced investment and hesitancy in business decisions between the countries, as companies wait to understand how markets will be directly affected,” he added.

*By Kariny Leal — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Trump’s tariff threat seen as bigger risk for inflation than growth

Economists warn of secondary effects from currency, trade tensions

07/11/2025 

The 50% tariff announced by U.S. President Donald Trump on Brazilian exports is expected to have a limited direct impact on Brazil’s economy, but economists warn that the damage could escalate depending on how negotiations unfold.

Most analysts agree that the effects will be concentrated in specific sectors and companies. As a relatively closed economy, exports make up a modest share of Brazil’s GDP, and the United States, though Brazil’s second-largest buyer, accounts for just 12% of exports.

However, potential secondary effects warrant attention. Currency volatility, especially driven by heightened risk perception, could push up the exchange rate and reignite inflation. Foreign investment could also be affected if tensions with the U.S. escalate

Preliminary estimates from Bradesco BBI suggest the tariffs could cut $15 billion from exports this year, or 0.6% of GDP. BTG Pactual sees losses of $7 billion in 2025 and $13 billion in 2026, equal to 0.3% and 0.6% of GDP, respectively.

In a report, economists Iana Ferrão and Luiza Paparounis said the effective average tariff on Brazilian goods exported to the U.S. would jump from 1.3% in 2024 to 37.2% in 2025.

“Because the price elasticity of Brazil’s imports relative to the exchange rate is below 1 in the short term, an initial depreciation of the real does little to offset the external shock. This means both the trade surplus and current account are likely to deteriorate by roughly the same amount as the drop in exports,” they wrote.

XP Investimentos forecasts a 0.3 percentage point reduction in GDP growth in 2025 and 0.5 pp in 2026 if the tariffs take effect, with a drop in exports of $6.5 billion and $16.5 billion, respectively. The firm also expects tighter financial conditions. Oxford Economics, in contrast, projects a smaller loss—below 0.05 pp in both GDP and exports in 2026—and sees foreign direct investment (FDI) declining by 0.2 pp.

If Brazil enacts reciprocal measures, the impact would be greater. GDP could shrink by 0.1 pp, and FDI could fall as much as 0.5 pp.

“Trump’s letter may open the door to negotiations and reduce the final tariff. But we’re skeptical: Trump’s threat is unlikely to influence domestic Brazilian politics,” said Felipe Camargo, global chief economist at Oxford Economics.

Inflation impact

The inflation outlook remains more uncertain. Brazil’s price dynamics had been improving, helped by a stronger real, which had also influenced market expectations. But the exchange rate per U.S. dollar rose 1.79% in two days, halting that trend.

If the exchange rate stabilizes, some economists believe the tariff hike might temporarily ease inflation by boosting domestic supply of products usually shipped to the U.S., such as meat, coffee, and orange juice.

“There’s talk that beef prices could rise in the second half of the year, but these developments could cancel that out,” said Warren’s inflation strategist, Andréa Angelo. In her view, the exchange rate would only start affecting inflation if it reverses the gains of the first half and exceeds R$6 per dollar.

Santander shares a similar view. “We might see some downward pressure in the first two months. After that, it depends on the dollar’s path. If it stays around current levels, our inflation forecast doesn’t change much,” Adriano Valladão said. A worsening inflation scenario driven by the exchange rate would require the dollar to rise above R$5.80. On Thursday, the commercial rate closed at R$5.54.

XP does not expect a meaningful inflation impact if Brazil refrains from retaliation. But escalation could hit Brazil’s import basket, which includes fuel, chemicals, pharmaceuticals, and auto and aerospace components.

“For fuels, around 3% of gasoline and 5% of diesel consumed in Brazil come from the U.S. Substitution wouldn’t be easy, but it’s possible. The most critical area, however, is air travel: between 10% and 15% of aviation kerosene used in Brazil is imported from the U.S.,” the firm said. A 50% Brazilian tariff on these goods could add 0.05 pp to inflation through higher airfare.

No retreat expected from Trump

For UBS BB chief economist, Alexandre de Ázara, the 50% tariff on Brazilian products is unlikely to be rolled back. He argued that Mr. Trump’s grievances clash directly with the Brazilian government and judiciary: the legal situation of former president Jair Bolsonaro, Mr. Lula’s pro-Iran rhetoric and support for a BRICS currency alternative to the dollar, and what the American president sees as persecution of U.S. tech companies by Brazil’s Supreme Court.

“The Brazilian government needs to stop escalating first. What we’ve seen so far is that if a country retaliates, Trump always retaliates back,” Mr. Ázara said. He does not believe Mr. Trump will compromise on these issues.

The greater risk, he warned, lies in further escalation. “From an economic standpoint, de-escalation would be wiser. But that doesn’t seem to be the government’s path. If Brazil imposes a 50% tariff across the board, we might stop producing medicine, for instance, because a large share of the pharmaceutical industry’s inputs come from the U.S. And Trump could strike back again.”

Mr. Ázara does not rule out more drastic U.S. measures, such as restrictions on American investment in Brazil. “That could be very damaging and could severely impact the exchange rate,” he said.

*By Marcelo Osakabe and Marcela Villar — São Paulo

Souce: Valor International

https://valorinternational.globo.com/

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Brazil’s tax system deepens inequality, Oxfam says

Organization urges race and gender equity measures in proposed income tax bill to promote fairness

 

 

 

07/10/2025 

Tax policies like the one proposed in Bill 1087/2025 — which expands the income tax exemption threshold and creates a minimum tax rate of up to 10% for those earning more than R$600,000 per year—should take race and gender into account to ensure tax justice, according to Oxfam Brasil.

In a report released Thursday (10), the organization outlines proposals to make Brazil’s tax system more progressive and less unequal. It recommends, among other measures, that the bill include mechanisms for assessing its impact on promoting racial and gender equality across different social groups. “Without considering race and gender markers in tax policies, there’s no way to evaluate whether we’re truly making progress,” said Carolina Gonçalves, coordinator of social and economic justice at Oxfam Brasil.

The report highlights the concentration of income in Brazil and notes that, according to the government, the expanded exemption would benefit 10 million people, financed by just 141,000 individuals who make more than R$50,000 per month and would be subject to a minimum 10% tax rate. “In other words, 0.13% of all taxpayers in the country can bear the cost of exempting 10 million people,” the document said.

For Ms. Gonçalves, in a country with a historically regressive tax structure—in which the tax burden decreases as income rises—tax injustice cannot be separated from racial inequality. “This structure perpetuates and deepens inequality,” she said.

An analysis of 2024 household survey data (Pnad) by Oxfam Brasil found that among individuals earning R$3,000 to R$7,000 per month—the group that stands to benefit from the proposal—59% are men and 41% women. Racially, 55% are white and 44% are Black or mixed race. Among the wealthiest 0.1% of Brazilians, who earn an average annual income of R$6 million, only 19% are women and 20% are Black or mixed race.

“The top of Brazil’s economic pyramid is overwhelmingly made up of white men. That’s no accident,” Ms. Gonçalves said.

Luiza Nassif Pires, a professor at the University of Campinas (Unicamp), warned that macroeconomic policies that fail to address inequality and its dimensions—such as race and gender—risk deepening it. “So any reform to promote tax justice must be sensitive to race and gender,” she said. Her research, she noted, shows that the current income tax system disproportionately benefits white individuals. Ms. Pires also co-directs the Center for Research on Inequality and Macroeconomics at the University of São Paulo’s School of Economics and Business (Made-FEA/USP).

Economist Nathalie Beghin, a board member at the Institute for Socioeconomic Studies (INESC), argued that so-called “neutral” approaches are not enough to fix the structural inequality embedded in Brazil’s tax system.

“That’s why affirmative measures are necessary—such as the cashback mechanism approved in the recent tax reform, which allows part of the tax burden to be refunded to lower-income households, or income tax exemptions for the poor,” she said, referring to the proposal in Bill 1087/2025, which is currently under review in the Lower House.

Oxfam Brasil supports the bill’s approval but recommends adding both an impact evaluation framework and a section in tax forms for self-declared race. These data, the report says, could support the creation of more equitable public policies.

*By Michael Esquer — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Brazil’s inflation exceeds target ceiling for first time under new rules

IPCA rose 0.24% in June and 5.35% over 12 months, breaching continuous target system of 4.5%

 

 

 

07/10/2025 

Brazil’s official inflation, as measured by the Extended Consumer Price Index (IPCA), rose 0.24% in June, slightly down from 0.26% in May, according to data released by the national statistics agency IBGE. While modest, it was the highest rate for the month of June since 2022, when inflation reached 0.67%.

The June figure came in above the median forecast of 0.19% from 33 financial institutions and consulting firms surveyed by Valor Data, Valor’s financial data provider. Forecasts ranged from 0.11% to 0.26%.

In the 12 months through June, inflation reached 5.35%, exceeding the upper limit of the Central Bank’s inflation target range for the first time since a new framework came into effect earlier this year. The current system sets a continuous target of 3%, with a tolerance band of 1.5% to 4.5%. If the 12-month IPCA remains outside this range for six consecutive months, the target is considered to have been breached.

Since January 2025, 12-month inflation has remained above the 4.5% ceiling. The June result marks the sixth consecutive month above the range, triggering a formal breach under the new rules set by the National Monetary Council (CMN).

Under the new framework, the Central Bank must now publish a semiannual open letter to the finance minister explaining the reasons for missing the target, the steps being taken to bring inflation back within the range, and the expected timeframe. The institution must also include a written explanation in its Monetary Policy Report, which replaces the previous Inflation Report published every quarter.

The inflation target system was revised to enhance predictability in monetary policy. Previously, the Central Bank aimed to meet an annual target based on end-of-year inflation. The shift to a continuous target requires the institution to manage inflation expectations more consistently over time.

For the 12-month figure, the median market expectation was 5.3%, according to Valor Data, with estimates ranging from 5.22% to 5.37%.

IBGE calculates the IPCA based on the consumption basket of households earning between one and 40 minimum wages, covering 10 metropolitan areas along with the cities of Goiânia, Campo Grande, Rio Branco, São Luís, Aracaju, and Brasília.

Price behavior by category

Of the nine spending categories used to calculate the index, five showed slower price increases in June compared to May. Food and beverages saw deflation of 0.18% in June after rising 0.17% the previous month. Slower inflation was also observed in housing (from 1.19% to 0.99%), health and personal care (from 0.54% to 0.07%), personal expenses (from 0.35% to 0.23%), and education (from 0.05% to zero).

On the other hand, price increases accelerated in household goods (from -0.27% to 0.08%), clothing (from 0.41% to 0.75%), transportation (from -0.37% to 0.27%), and communication (from 0.07% to 0.11%).

Diffusion and core inflation

Inflation became less widespread in June. The diffusion index, which tracks the share of goods and services with price increases, fell to 53.6% from 59.7% in May, according to Valor Data. Excluding food, which is among the most volatile categories, the index remained stable at 59.8%.

The average of the five core inflation measures tracked by the Central Bank slowed slightly to 0.29% in June from 0.30% in May, according to MCM Consultores. Over the 12-month period, the average of the core indexes rose to 5.23% from 5.17%.

By Lucianne Carneiro

Source: Valor International

https://valorinternational.globo.com/

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