Reasons for Brazil’s Higher Economic Growth in 2023, According to the IMF

The International Monetary Fund has raised its growth projection for Brazil’s GDP from 2.1% to 3.1% in 2023, in contrast to the global slowdown

Commercial street in São Paulo: Expansion of consumption and the service sector drives activity
October 11, 2023 | 12:00 PM

Bloomberg Línea — The International Monetary Fund (IMF)’s revision for global economic performance, released on Tuesday (10th), identifies Brazil as one of the countries with a higher-than-anticipated Gross Domestic Product (GDP) expansion in 2023. The Brazilian economy is projected to grow by 3.1% this year. This figure is 1 percentage point higher than the previous estimate made in July by the institution and represents the largest positive difference among the major global economies analyzed. For 2024, the growth estimate for Brazil’s GDP is 1.5%.

This performance is notable as the world faces an economic slowdown, feeling the impacts of monetary tightening and rising inflation.

The IMF predicts that the global economy will grow by 3% in 2023, down from last year (3.5%) and below the historical average of 3.8% annually for the period between 2000 and 2019. For Latin America, the projection is for an expansion of 2.3% this year and in 2024, after a rise of 4.5% last year. Among the major economies, only India (6.3%), China (5%), and Mexico (3.2%) are expected to have a higher expansion than Brazil in 2023, as per IMF projections.

Why is Brazil Expected to Grow More in 2023, According to the IMF?

The IMF highlights three primary reasons for Brazil’s stronger economic growth in 2023: the expansion of agriculture, the resilience of the service sector, and increased consumption, which has been bolstered by fiscal stimuli from the Lula administration. Brazil’s accelerated growth, along with Mexico’s, led the institution to upgrade its 2023 growth projection for Latin America from 1.9% to 2.3%.


“The upward revision for 2023 since July reflects stronger-than-expected growth in Brazil, revised up by 1.0 percentage point to 3.1%, driven by a robust agricultural sector and resilient services in the first half of 2023. Consumption also remained strong, supported by fiscal stimulus,” states the institution in its 182-page World Economic Outlook report.

The expansion of the agricultural and service sectors had already been identified by financial market economists as some of the factors for Brazil’s better-than-expected economic performance in 2023. Over the four quarters ending in June 2023, the agricultural sector expanded by 11.2%, while services grew by 3.3%, according to GDP data for the second quarter released by IBGE. Meanwhile, household consumption, a key driver of the economy, increased by 3.9% over the same period.

Another aspect highlighted by the IMF is fiscal stimulus. After ending 2022 with a primary surplus, the government is projected to have a deficit of 1.1% of GDP, as per the Focus report from the Central Bank. This outcome reflects increased spending on social programs like Bolsa Família, a higher minimum wage, public servant salary adjustments, and other expenditures. This has been a point of concern among financial market economists.


As President Luiz Inácio Lula da Silva increases spending and struggles to create compensatory mechanisms with revenue growth, most economists predict the government will not meet its target of zeroing the fiscal deficit in 2024 (with a tolerance range of 0.25 percentage points up or down). Economists forecast a deficit of 0.83% of GDP for the following year, also according to the Focus report.

Fiscal expansion is not unique to Brazil and is also a focal point for the IMF. The institution states that fiscal policy needs to align with central banks’ monetary policy to effectively combat rising inflation. “Fiscal policy needs to support the monetary strategy and assist in the disinflation process. In 2022, fiscal and monetary policies were aligned, as many pandemic-related emergency fiscal measures were being phased out. In 2023, the degree of alignment decreased,” says the institution in a text signed by Chief Economist Pierre-Olivier Gourinchas.

According to the IMF, the most concerning situation is in the United States, where fiscal policy has deteriorated “significantly”. “US fiscal policy should not be pro-cyclical, especially at this stage of the inflation cycle,” it says. The IMF believes that governments’ policies regarding public spending in all countries should focus on rebuilding the counter-cyclical policies affected by the pandemic and energy crisis, such as reducing government subsidies to energy and fuels.