Brazil

Economic growth to continue easing in 2026

Growth dynamics are expected to lose further momentum in 2026. Household consumption (64% of GDP in 2024) will remain the main driver of growth, supported by anticipated increases in income tax exemptions, new credit instruments (such as the private payroll loan for documented employees) and the minimum wage adjustment rule which will provide real income gains for workers and beneficiaries of certain cash transfer programmes. However, the pace of consumption growth is likely to slow due to a gradual weakening of the labour market and persistently tight credit conditions. The central bank is expected to begin easing its benchmark interest rate (Selic) from the current level of 15% per annum in Q1 2026. The move is supported by marginal improvements in inflation expectations, amid slowing economic activity and a stronger exchange rate (throughout 2025 the real appreciated by 13% against the dollar until November). Nevertheless, the average interest rate is projected to remain elevated throughout 2026, with market estimates placing the year-end rate at 12.25%. Consequently, business payment conditions may see only modest improvement during the year. The number of companies filing for Chapter XI bankruptcy protection reached a record high in 2024 and the rate continued to be high from January to April 2025. The private sector is likely to be durably impacted by tight credit conditions and the spillover effects on non-earmarked bank loans and the debenture market. In the same manner, gross fixed investment is expected to expand at a slower pace. Additionally, the general elections scheduled for October 2026 may contribute to weaker investment growth, since investors may prefer to wait for the appointment of the head of the executive branch and the potential implications for economic policy. As for the public sector, it will remain constrained by fiscal limitations. However, despite the need for fiscal consolidation, public spending (19% of GDP) is expected to maintain a growth trajectory in 2026, potentially supported by countercyclical fiscal and parafiscal measures in the run-up to the October elections. Regarding the agricultural sector (6% of GDP), a new record crop is anticipated for 2026, although the growth rate is expected to decelerate. While La Niña may occur at the beginning of the year, it is projected to be mild and short-lived. In Brazil, this weather phenomenon typically results in reduced rainfall in the South and increased precipitation in the North and Northeast. In the Southeast and Centre-West, the likelihood of cooler and wetter conditions rises. Last, export growth (18% of GDP) is expected to slow, reflecting weaker global demand, including from China and Argentina.

The diplomatic rapprochement with the US since October 2025 could help further lower import tariffs on Brazilian goods. In November 2025, Brazil gained partial tariff relief as the U.S. exempted key agricultural products—including beef and coffee—from the 40% import duties imposed in August. Brazil now faces an average effective tariff of about 25%, with some industrial goods, such as iron and steel, taxed up to 50% due to 10% reciprocal duties, the Agusut hike, and specific Section 232 measures. As a result, only 20–22% of Brazil’s exports to the U.S. remain subject to the highest tariffs, down from 36% between August – October 2025.

External shortfall to narrow marginally amid a durably weak fiscal landscape

Brazil’s external imbalance is expected to improve somewhat in 2026 on the back of a higher trade surplus (3.0% GDP in 2024). This is expected to result from a faster loss of import momentum amid weaker domestic activity than in exports. Similarly, the large primary income deficit (3.5% of GDP) will likely be curtailed by the drop in repatriated foreign investment income, which is mainly associated with lower domestic activity. Conversely, the services deficit (-2.5% of GDP) is expected to continue deteriorating to a certain degree owing to rising digital services consumption amid rising deficits in intellectual property and telecom services. On the financing side, net foreign direct investment (2.2% of GDP) will be unable to fully cover the external shortfall. Nevertheless, durably robust foreign currency reserves that ensured import coverage of over 15 months in September 2025 will remain an important external buffer. Moreover, total gross external debt (including intercompany loans and domestic fixed income securities held by non-residents) remains low, standing at 37% of GDP in September 2025, with its public share representing a mere 11% of GDP.

On the fiscal front, the government has set a primary surplus target (i.e., excluding interest payments) of 0.25% of GDP for 2026, with a tolerance margin of ±0.25 percentage points of GDP. However, meeting the target is uncertain as it relies on unpredictable or one-off revenues — the government is facing a revenue shortfall of approximately 0.3% of GDP, based on the 2026 budget. Moreover, the actual fiscal deficit is likely to be larger due to exemptions from the fiscal target, such as certain court-ordered tax payments. Additionally, the budget deficit will likely widen on the back of rising debt and a durably elevated average Selic policy rate in 2026 which impacts the portion of Treasury bills related to the index, which accounted for 47% of the total debt in September 2025. As a result, the already high gross public debt (96% in local currency) is set to further increase in 2026. The current primary surplus targets and GDP growth are insufficient to stabilise the public debt to GDP ratio. Overall, Brazil’s public accounts continue to be the Achilles heel of the country’s economy. Until now, policymakers have mostly concentrated their efforts on enhancing revenues rather than cutting expenditures and addressing high budget rigidity (equivalent to 92% of total federal public spending). With the presidential elections scheduled in 2026, whoever takes office in 2027 will need to reassess public finances, including a review of the fiscal framework and the implementation of structural reforms to address the rapid growth of mandatory expenditures.

Brazilians head to the polls

General elections are scheduled for 4 October 2026 to elect the President of Brazil, all 513 members of the Lower House, two-thirds of the Senate (54 out of 81 seats) and the governors and legislative assemblies of all 26 states and the Federal District. If the presidential or gubernatorial candidate fails to secure half of the valid votes, a runoff will be held on 25 October. The newly-elected President and Governors will take office on 1 January 2027, while legislators will be sworn in on 1 February 2027. As with the presidential race, the incumbent and three-time President (2003-2006, 2007-2010 and 2023-2026) Luiz Inácio Lula da Silva, better known as Lula, from the left-wing Labour Party (PT), intends to seek re-election. His popularity rose somewhat following the US decision to raise tariffs on Brazilian imports from 10% to 50% in July 2025, citing the legal situation of former President Jair Bolsonaro (2019 – 2022), decisions taken by Brazil's Supreme Court affecting US digital platforms (ordering the blockage of profiles and content considered anti-democratic) and what they called an unfair trading relationship between the two countries (albeit the US historically holds a surplus with Brazil). In October 2025, President Lula’s approval rating reached 51.2% according to a survey conducted by AtlasIntel with Bloomberg, marking the highest level since January 2024. Moreover, support may also come from the bill approved by Congress in November 2025 which raises the income tax exemption threshold from USD 566 to USD 933 as of 2026 and grants scaled discounts for individuals earning up to USD 1,371 per month. To offset these tax reductions, Congress has introduced a progressive minimum tax of up to 10% for those earning more than USD 112 thousand per year. Conversely, Brazil’s deadliest-ever police raid carried out by the Rio de Janeiro state government in October 2025 which resulted in at least 121 deaths (including four police officers), with 95% reportedly linked to criminal gangs, may jeopardise President Lula’s recent gain in popularity. While Lula publicly criticised the raid, recent polls indicated strong public support for the operation despite the brutality, with 55% of Brazilians approving the police raid. These findings underscore the political challenges facing the leftist president, whose administration has struggled to address demands for tougher security policy. The October episode presents an opportunity for fractured right-wing opposition to enhance its position in the October 2026 elections, though no clear presidential candidate has emerged for now. In September 2025, Brazil’s Supreme Court sentenced former President Jair Bolsonaro to 27 years and three months in prison for crimes including leading an armed criminal organisation, attempting to overthrow the democratic rule of law and damaging protected public property. Under the Clean Record Law, this makes him ineligible to run for office until 2060, as the law bars candidates for eight years after serving their sentence. Although Congress passed legislation in September 2025 to change the start the ineligibility period from the conviction date, President Lula used vetoes to block any retroactive application. These vetoes are now under review by Congress, which may uphold or overturn them. In any case, Bolsonaro is out of the 2026 electoral race and has yet to endorse a successor. However, he has so far refused to step aside, prompting the most competitive right-wing figure in early polls—São Paulo Governor Tarcísio de Freitas, who served as Infrastructure Minister under Bolsonaro—to announce in October 2025 that he will not run for president and will instead seek re-election in the state elections. While some believe Tarcísio may still reconsider his decision, other potential right-wing contenders include Ratinho Junior, governor of Paraná; Romeu Zema, governor of Minas Gerais; and federal deputy Eduardo Bolsonaro, son of the former president.

Externally, diplomatic relations with Argentina have been guided by pragmatism from both sides despite the ideological differences with the ultra-liberal government of Javier Milei. Regarding the relationship with Paraguay, in a joint statement on 17 November 2025, the foreign ministers of Brazil and Paraguay agreed to resume negotiations in the first half of December on the revision of Annex C of the Itaipu Treaty, based on the Bilateral Understanding of April 2024, which included discussions on the price of electricity produced by the bi-national dam.

As for Venezuela, the relation has soured somewhat since the neighbouring country’s presidential election in July 2024 as the Brazilian government does not officially recognise the result. However, in the wake of escalating tensions between Venezuela (also Colombia) and the US since September 2025, when US strikes began on alleged drug-carrying vessels in the Caribbean sea and the Eastern Pacific, Lula has criticised the operations and condemned the threat of US intervention in South America, while offering to mediate – notably between the US and Venezuela – in a bid to negotiate a solution to prevent further military escalation. These events have come at a time of relative improvement in diplomatic relations between Brazil and the US. In October 2025, President Donald Trump and Lula met during the ASEAN summit in Kuala Lumpur to ease tensions between their countries after the US imposed steep tariffs on some Brazilian exports. During the meeting, they agreed to launch “immediate” discussions between their teams on tariffs and other issues. Given the US need to find alternatives to China for critical mineral supplies, Brazil could become an attractive partner. However, while Brazil is seeking relief from US tariffs, it is also actively pursuing opportunities to expand into new markets. In September 2025, Mercosur—comprising Argentina, Brazil, Bolivia, Paraguay and Uruguay—signed a free trade agreement with the European Free Trade Association (EFTA), which includes Switzerland, Norway, Iceland and Liechtenstein. The agreement is currently awaiting ratification by all participating countries. Additionally, in the same month, Mercosur resumed negotiations with Canada after a break of nearly four years. Last, after negotiations spanning 25 years, Mercosur and the European Union (EU) announced the signing in December 2024 of a free trade agreement to eliminate tariffs on most goods. This came five years after an initial deal which had been stalled notably due to EU environmental concerns over deforestation in Mercosur countries. The major changes in the 2019 text are the commitment to adhere to the Paris Climate Change Agreement (with possible suspension of benefits in the event of a breach, amendments to public procurement, automotive trading, and critical minerals exports. However, ratification of the agreement still needs to be passed by the parliaments of Mercosur member countries and, on the European side, the Council of the European Union and the European Parliament. In the European Council, at least 55% of the countries must agree, and these must account for at least 65% of the bloc's total population. Objections come mainly from France, but it may raise opposition from other countries as well. Nonetheless, in November 2025, French President Emmanuel Macron stated he was “quite positive” about the possibility of accepting the trade agreement, though he emphasised that France would remain “vigilant” in protecting its national interests. He said the French government’s concerns had been heeded by the European Commission, which responded by including safeguard clauses and committing to provide additional support to the livestock sector. The Commission also pledged to strengthen protection measures for the internal European market through enhancements to the customs union. President Macron added that the European Commission would work with Mercosur to ensure these clauses are effectively incorporated into the text of the final agreement.

Payment

Bills of exchange (letra de câmbio) and, to a lesser extent, promissory notes (nota promissória) are the most common form of credit note used in local commercial transactions. The validity of either instrument requires a certain degree of formalism in their issuance. The most commonly payment method used in Brasil is “Boleto bancário” which is an official Brazilian payment method regulated by the Central Bank of Brazil. It is a push payment system, which was launched in 1993 and today generates 3.7 billion transactions per year. The payment process for “Boleto bancário” transactions is similar to that of wire transfer or cash payment methods. Customers are provided with a prefilled boleto bancário payment slip. At this point, the customer has the option of printing the form and paying it physically at any bank branch or at authorized processors such as drugstores, supermarkets, lottery agencies and post offices. Additionally, it can also be paid electronically at any of the more than 48,000 ATMs in Brazil, as well as through internet banking or mobile banking apps, which are widely used in the country. Although the use of the above credit payment instruments for international settlements is not advisable, they nonetheless represent, an effective means of pressure in case of default, constituting an extra-legal enforcement title that provides creditors with privileged access to enforcement proceedings.

The duplicata mercantil, a specific payment instrument, is a copy of the original invoice presented by the supplier to the customer within 30 days for acceptance and signature. It can then circulate as an enforceable credit instrument.

Bank transfers, sometimes guaranteed by a standby letter of credit, are also commonly used for payments in domestic and foreign transactions. They offer relatively flexible settlement processing, particularly via the SWIFT electronic network, to which most major Brazilian banks are connected. For transfers of large sums, various highly automated interbank transfer systems are available, e.g. the STR real time Interbank Fund Transfer System (sistema de transferência de reservas) or the National Financial System Network (rede do sistema financeiro nacional, RSFN).

Debt Collection

Amicable phase

Creditors begin this phase by attempting to contact their debtors via telephone and email. If unsuccessful, creditors must then make a final demand by a registered letter with recorded delivery, requesting that the debtor pay the outstanding principal increased by past-due interest as stipulated in the transaction agreement. In the absence of an interest-rate clause, the civil code stipulates use of the penalty interest rate imposed on tax payments, which is 1% per month past due. When creditors are unable to reach their debtors by phone and/or email, a search of the company’s contacts, partner businesses, and owners is conducted. If there is still no contact, this leads to an investigation of assets, an on-site visit, and an analysis of the debtor’s financial situation so as to ascertain the feasibility of taking legal action. Considering the slow pace and the cost of legal proceedings, it is always advisable to negotiate directly with defaulting debtors where possible, and attempt to settle on an amicable basis, taking into consideration that a repayment plan may last for up to two years.

Legal proceedings

The legal system comprises two types of jurisdiction. The first of these is at the state level. Each Brazilian state (26 states, plus the Distrito Federal of Brasilia), notably including a Court of Justice (Tribunal de Justiça) whose judgments can be appealed at the state level. Legal costs vary from state to state. The second type of jurisdiction involves the Federal Courts. There are five regional Federal Courts (Tribunais Regionais Federais, TRF), each with its own geographic competence encompassing several states. For recourse on non-constitutional questions, TRF judgments can be appealed to the highest court of law, the Superior Tribunal de Justiça (STJ) located in Brasilia.

Monitory Action

The ação monitória is a special procedure that can be filed by any creditor who holds either a non-enforceable written proof, or any proof that is considered as an extrajudicial instrument recognized by the law as enforceable (even if it does not comply with all the legal requirements). If the debtor’s obligation is deemed certain, liquid and eligible, the Municipal Courts usually render payment orders within fifteen days. If the debtor fails to comply within three days, the order becomes enforceable. In cases of appeal, the creditor has to commence formal ordinary legal action. The difference between this procedure and the Enforcement Proceeding lies in the legal requirements and in the possibility of questioning the merit of the obligational relationship by the debtor over the course of the suit. The ação monitória is slower than a regular Enforcement Proceeding: if the debtor presents an objection in the court, the merits of the commercial relation will be thoroughly discussed in the same fashion as a Standard Lawsuit. The estimated period of this lawsuit is on average two years.

Ordinary proceedings

Ordinary proceedings are presided over by an interrogating judge (inquisitorial procedure), and require examination of evidence submitted by each party in conjunction with study of any expert testimony. The creditor must serve the debtor with a registered Writ of Summons, which the debtor must answer within 15 days of receipt. The initial proceedings encompass an investigation phase and an examination phase. The final step of the process is the main hearing, during which the respective parties are heard. After this, a judgement is made by the court. The tribunal may render a default judgment if a duly served writ is left unanswered. It takes two to three years to obtain an enforceable judgment in first instance.

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Enforcement of a Legal Decision

On average and within the main states, it takes a year for a judgement to be made following the initiation of legal proceedings.

COURT DECISION

A final judgment is normally automatically enforced by Brazilian Courts. Since the reforms in 2005 and 2006, attachment of the debtor’s assets is possible if the latter fails to obey a final order within three days. In practice, execution can prove difficult, as there are very few methods for tracing assets in Brazil.

Foreign awards can be enforced if they meet certain conditions: the homologation has to be concluded by the Superior Court to be enforced in Brazil, the parties have be notified, and the award has to comply with all the requirements for enforcement (such as being translated from Portuguese by a public sworn translator).

EXTRAJUDICIAL INSTRUMENTS

The enforcement of extrajudicial instruments is a legal type of enforcement granted to the creditor in order to allow him to claim his rights against the debtor. This is the most direct and effective court vehicle to recover credits in Brazil. This lawsuit does not require prior guarantees from foreign creditors (as the bond in the monitory suit for example). Moreover, Brazilian legislation renders some documents enforceable. These are separated in two main categories: Legal enforcement titles (including judgments made by a local Court recognizing the existence of a contractual obligation, and court-approved conciliations and arbitral awards) and extra-legal enforcement titles, which includes bills of exchange, invoices, promissory notes, duplicata mercantil, cheques, official documents signed by the debtor, private agreements signed by debtor, creditor and two witnesses as an acknowledgement of debt, secured agreements, and so on. It is obligatory to submit the original versions of these documents – copies are not accepted by the court.

Insolvency Proceedings

OUT OF COURT RESTRUCTURING

Debtors can negotiate a restructuring plan informally with their creditors. The plan must represent a minimum of 60% of the total debt amount. This plan must be approved by the court.

JUDICIAL RESTRUCTURING

Debtors make a restructure to the request to the court, or request the conversion of a liquidation request to the court from their creditor(s). If the plan is accepted by the court, debtors typically have 60 days to present a list with all debts from creditors, and a payment plan. A judge then schedules two creditors’ meetings, with the second only occurring if the first one does not take place. During these meetings, the proposed plan must be accepted by a majority of creditors. Once accepted, payments start as decided in the approved plan. The estimated period of this lawsuit is between 7 and 20 years.

LIQUIDATION

The principal stages of liquidation are as follows:

liquidation can be requested by either debtors (auto-falência), or any of their creditors if the debt totals more than 40 times the minimum wage;

the initiating party must prove the existence of a net obligation, overdue and defaulted by presenting protested enforceable title (special protest – personal notice of debtor);

upon analysis of a debtor’s financial situation, the judge can decide that the company must be liquidated.

All of the company’s assets have to be sold and the obtained amount is shared equally between creditors, respecting eventual privileges. The estimated period of this lawsuit is between 7?and 20 years.

Last updated: November 2025