ED – this is bne IntelliNews's annual Brazil OUTLOOK 2026 for the upcoming year, where we make a forward-looking assessment for all of the major Global Emerging Markets in Emerging Europe, Asia, Latin America, Africa and the Middle East, drawing on insightful reporting from our bureaus around the world.

What is on the agenda? What are the prospects for economic growth and what problems lie in store in the coming year? A detailed report that covers, business, economics, finance, energy, politics and the major sectors of the most important markets.

Brazil enters 2026 at a political crossroads. The high-stakes October presidential election will determine whether 80-year-old President Luiz Inácio Lula da Silva secures a fourth non-consecutive term or whether a yet-to-be-defined conservative candidate, likely São Paulo Governor Tarcísio de Freitas or a close relative of former president Jair Bolsonaro, can unite the fragmented opposition.

Lula leads in polls (46%-39% over de Freitas) yet his approval ratings remained net negative throughout 2025. Bolsonaro, a highly polarising and controversial figure, sits under house arrest appealing a 27-year prison sentence for an attempted coup, leaving the right struggling to coalesce. But the right retains an advantage, as crime and security have emerged as potent electoral issues following Rio’s deadliest police operation (over 120 deaths in October), with the popular response highlighting voters’ appetite for hard-line policies that may prove uncomfortable for the left.

US-Brazil relations careened from crisis to accommodation through 2025. Donald Trump’s 50% August punitive tariffs, triggered by the US president’s support for Bolsonaro after his detention, gave way to a productive October Lula-Trump meeting in Malaysia, with November exemptions on coffee, beef, orange juice, açaí and cassava delivering $700mn relief. Brazil’s weighted average tariff rate fell from 50% to approximately 29%. The geopolitical dimension, which sees Brazil emerging as an alternative to Chinese dominance in critical minerals through vertically-integrated rare earth projects, represents perhaps the most significant long-term shift in strategic positioning.

Yet fiscal arithmetic may prove more decisive than electoral dynamics. Gross public debt reached 78.1% of GDP (Central Bank methodology) or 91.4% (IMF’s broader calculation), heading toward 98% by 2030. Goldman Sachs warns that “a fourth Lula term cannot repeat his third term’s fiscal management,” requiring a primary surplus above 2.5% of GDP versus the government’s 0.25% target, a tenfold gap necessitating 3 percentage points of GDP adjustment. Morningstar DBRS notes elections will “delay consolidation efforts,” while Goldman states that fiscal balance “will become a top priority from 2027, regardless of outcome.”

The implication: 2026 represents an interregnum before inevitable post-election austerity.

The economy decelerates sharply as monetary tightening bites. After 3.4% growth in 2024, consensus forecasts average 2.3% for 2025 (ranging from 2.2% to 2.4% across major institutions) before slowing to approximately 1.8% in 2026 (ranging from 1.5% to 2.2%). Third-quarter 2025 GDP grew just 0.1% quarter-on-quarter. The Central Bank’s 15% benchmark interest rate (Selic)–a near-20-year high held since July–has driven this cyclical cooling. Inflation moderated from 5.5% in April to 4.5% by November, returning to the target band, though services inflation remains elevated at 6.2% reflecting record-low 5.4% unemployment.

Monetary easing is expected from January 2026, with the Selic projected to decline to 11-12% by year-end, though Goldman warns of potential delays until March if election-year spending proves excessive.

External accounts remain manageable with record FDI of $74.2bn in January-October fully offsetting the $62bn current account deficit (3.51% of GDP). The real appreciated to BRL5.40/USD driven by double-digit real interest rates creating the region’s strongest carry trade, though analysts expect a gradual depreciation to 5.50-5.60 through 2026. The real economy presents contradictions: agriculture boomed (Q2 farm GDP +10.1% year-on-year) yet faces mounting competitive pressures as China suspended US tariff retaliation following talks between Trump and President Xi Jinping; manufacturing contracted sharply (September PMI 46.5) under US tariffs and Chinese auto import competition (+51.2% year-on-year to 123,482 units).

Brazil's trade is dominated by four major partners. China accounts for 28-30% of exports and 22-25% of imports, generating a $30.8bn trade surplus driven by commodity demand for soybeans, iron ore, and crude oil–a relationship reinforced by both countries' leadership roles in the BRICS bloc, whose rotating presidency was held by Brazil this year. The European Union, with whom Lula aims to finalise a free trade agreement as part of the Mercosur trading bloc, collectively ranks as Brazil's second-largest trading partner at approximately 16% of total trade ($113.67bn in two-way commerce), with the bloc serving as Brazil's largest buyer of agricultural products (38% of exports to the EU) alongside significant oil shipments (26%). The United States represents 11% of exports and 15-19% of imports, though – despite Trump’s claim to the contrary – Brazil runs a deficit as it imports more machinery and technology than it exports in petroleum and manufactures.

Argentina comprises 5% of both exports and imports, concentrated in automotive trade, though purchases fell 17.6% in 2024 amid Argentina's economic crisis.

Brazil’s critical minerals sector emerges as genuine strategic opportunity. Three new rare earth projects integrate domestic processing rather than simply extracting ore for Chinese refineries–learning from Serra Verde’s cautionary tale. MagBras aims to manufacture super magnets entirely within Brazil by 2026, potentially loosening “China’s grip,” as per EIU assessment. Meanwhile, oil and gas expansion continues with national production reaching record 5.255mn boe/day (pre-salt 81.4% of output), state oil company Petrobras profits rebounding to $4.7bn, and BP’s Bumerangue discovery (potentially 2-2.5bn barrels) validating exploration potential.

Social gains undergird Lula’s resilience: 14.17mn lifted above the poverty line (May 2023-July 2025), life expectancy rising to 76.6 years, Gini inequality near record lows. Yet these achievements face threats from the post-election fiscal consolidation all analysts agree must occur. Goldman’s 3 percentage point GDP adjustment would inevitably impact social spending, creating the political economy challenge defining Brazil’s 2027-2028 trajectory. The question is whether institutions can compel adjustment before market pressure makes it involuntary, or whether Brazil’s historical pattern of muddling through can persist through yet another cycle.

Read the full OUTLOOK Brazil 2026 report here.