Bradesco and XP cut Brazil’s 2027 growth forecasts to 0.4% and 0.3%

Key Facts

Bradesco and XP cut their forecasts for Brazil’s economic growth in 2027, signaling mounting pessimism about activity as interest rates rise and financial conditions tighten. Reuters reported that Bradesco lowered its estimate to 0.4% from 1.0%, while XP cut its forecast to 0.3% from 1.0%. The revisions leave both institutions’ estimates far below the government’s 2.46% forecast in its budget proposal. The banks see uncertainty over the next government, along with borrowing costs and tighter financing conditions, weighing on demand. The move comes as the Copom committee kept the benchmark interest rate at 13.75% in its November decision, with expectations that it will remain high for longer amid a deteriorating inflation outlook.

The revisions were not limited to Bradesco and XP: Itaú and BTG Pactual cut their 2027 growth forecasts the previous week to 0.5% and 0.6%, respectively. The four estimates put economic growth in a range of 0.3% to 0.6%, compared with the government’s 2.46% forecast. XP attributed its cut to a further tightening in financial conditions, rising corporate and household debt, and reduced fiscal support. Bradesco said tighter financial conditions, weak confidence and slower credit growth could deepen the loss of momentum over the coming quarters. In describing the risks, it said these factors “should deepen the loss of momentum over the coming quarters.”

Services data reinforce the picture of a slowdown: the purchasing managers’ index stood at 44.5 in October, below the 50 mark that separates growth from contraction. The reading pointed to a deeper contraction, with new business declining for the second consecutive month and employment falling for a second month. The drop in new business was also the steepest in five and a half years, while confidence weakened. Reuters reported that services companies attributed the decline in activity to weak demand, inflationary pressures, postal strikes, project cancellations and the presidential election. These factors add to pressure on companies as growth expectations fall and financing remains costly.

The gap between the banks’ and the government’s estimates has direct fiscal significance because tax revenue is affected by the growth rate. According to a Treasury fiscal risk report, every 1 percentage point shortfall in growth reduces federal tax revenue by 16.6 billion reais. The estimate for the actual primary surplus in 2027 is about 18.6 billion reais, equivalent to 0.13% of gross domestic product. That estimate puts the government’s ability to meet its fiscal target at risk if growth falls short of the budget assumptions. The calculations matter as banks’ forecasts remain far below the government’s official estimate.

Markets reacted sharply after the election on October 26, with the real falling 8.1% to 5.415 per dollar and the Bovespa index dropping 13.9%. Brazil’s five-year credit default swaps rose to 144 basis points, from 120 basis points at the previous Friday’s close, signaling a higher cost of hedging against credit risk. Those moves provide a more sensitive financial backdrop for economic expectations and fiscal policy choices. The finance minister said President Lula was expected to decide on possible fiscal measures after returning from his overseas trip, during which he was scheduled to remain abroad until November 15. That decision remains one of the expected developments in the debate over the government’s response to fiscal challenges.

The Finance Ministry said it was reviewing its macroeconomic assumptions and that updated forecasts were expected to be published later in November. The review will show whether the government adjusts the growth estimate in its budget proposal in light of the banks’ forecasts. Meanwhile, a co-director of economics at S&P Global Market Intelligence said the data available at the time pointed to a contraction in gross domestic product in the fourth quarter. Pollyanna De Lima said: “The data available so far point to a contraction in gross domestic product in the fourth quarter.” The assessment links weakness in services to the broader activity picture ahead of the government’s revised forecasts.