Private consumption drives Brazil’s post-pandemic growth, IMF says

With the labor market remaining strong, incomes rising sharply and credit expanding at a robust pace, private consumption has repeatedly exceeded projections made by the Fund staff at the start of each year since 2021.

Private consumption accounts for roughly 60% of Brazil’s GDP on the demand side. In the first quarter of this year, household spending rose 1% from the previous quarter, again supported by a tight labor market, credit growth and income-transfer programs, all factors highlighted by the IMF.

Consumption strength

The report said private consumption has played a larger role in the recovery than other components of demand, including investment. Although investment has also expanded, it remains below its pre-pandemic trajectory.

Net exports, meanwhile, have contributed more to real GDP than before the pandemic, supported by strong exports, particularly hydrocarbons. Imports, however, remain below their pre-pandemic path, which the IMF said partly reflects the incomplete recovery in investment.

The Fund also pointed to continued fiscal support as another factor behind Brazil’s rebound from the pandemic, noting that government consumption has repeatedly exceeded expectations.

In addition, “total primary public spending, including transfers, exceeded forecasts, reflecting higher spending by states and municipalities, partly financed by transfers from the federal government,” the IMF said.

Fiscal support

The Fund said higher government spending was partly offset by stronger public revenue, driven by both economic growth and tax-policy measures.

“Overall, staff assess that fiscal support since the pandemic, through its immediate and lagged effects, added around 2% to the level of real GDP by 2025. This support contributed to output exceeding potential, implying a procyclical impulse,” the report said.

The IMF also said the growing number of exceptions to Brazil’s fiscal rules has weakened the path for the primary balance that would otherwise be consistent with meeting the targets.

Explaining the fiscal framework that replaced the spending cap in 2023, the Fund noted that Congress approved increases in government spending in 2025 that can be excluded when assessing compliance with primary-balance targets. The permitted deductions could reach as much as 0.7% of GDP by 2027.

“Some of the permitted deductions are not related to unexpected events,” the report said.

The IMF said the increase in deductions has pushed the trajectory of primary balances further away from the targets established under the fiscal framework and raised the projected path of long-term public debt.By