BTG Pactual Economist Mansueto Almeida Warns Fiscal Risk Will Slow Brazil’s GDP to 1% in 2027

Brazil’s economy faces a significant slowdown in 2027, according to Mansueto Almeida, the Chief Economist at BTG Pactual, one of Latin America's largest investment banks. Almeida, a former National Treasury Secretary who now offers a critical view from the private sector, projected that Brazil’s Gross Domestic Product (GDP) growth will hit an optimistic 1% in 2027, calling it the worst performance since the pandemic and a sharp deceleration from the post-pandemic average of roughly 3.3%.

The core driver of the anticipated slowdown is the country’s high real interest rate, which is above 9%, alongside the benchmark Selic rate remaining over 10% for a fifth consecutive year. This restrictive monetary environment, implemented by the Central Bank to curb inflation, is seen by Almeida as the major constraint on economic activity, severely limiting the capacity for investment and consumption. For the foreign investor, this high interest rate environment is the direct consequence of persistent fiscal risk and the market’s skepticism that the government can control spending.

The pain predicted for 2027 is a delayed consequence of the current year’s political calculus. Almeida noted that the expected 2% GDP growth for 2024 is largely boosted by a "large fiscal expansion" tied to the election year, which is pumping temporary stimulus into the economy. However, this ramp-up in public spending has driven up fiscal risk. Almeida highlighted that federal public spending is projected to have grown by a real 21% between 2023 and 2026, a pace he argues is forcing the Central Bank to keep the Selic rate elevated to compensate. The market consensus currently anticipates the Selic rate will still be around 13.75% by the end of 2026, a level Almeida says will "hurt activity" into the next presidential term.

Almeida, who has previously managed Brazil’s sovereign debt during his time at the Treasury, stressed that while the country possesses strong structural advantages—such as energy security and agricultural power—the domestic fiscal challenge remains paramount. He maintained that a rapid reversal of the growth trajectory is possible, but it requires the government to adjust its course by controlling the growth of public expenditure. This reduction in spending is necessary to reduce the fiscal premium embedded in the interest rate, allowing the Selic to fall into a single-digit range and paving the way for more sustainable growth.

What it touches

Almeida’s assessment directly touches the market for Brazilian sovereign debt and interest rate futures. The persistently high expected Selic rate increases the cost of servicing the government’s debt, which passed from 6% of GDP in 2023 to an estimated 8.5% this year. This rising cost of debt repayment is the mechanism that keeps both the Brazil real rate and the market price for Interest Rate Futures (DI) at elevated levels.