Agricultural activity declines and pressures Brazil’s GDP

The Brazilian economy recorded a 0.7% drop in May, according to the Central Bank’s Economic Activity Index (IBC-Br), ending a streak of four consecutive months of growth. The seasonally adjusted result was worse than the stability expected by analysts, reported Pecuaria.

On a year-over-year basis, the IBC-Br rose 3.2% and accumulated a 4.0% increase over the past 12 months, based on unadjusted data. May’s contraction was mainly driven by agriculture, which fell 4.2%. Industry declined 0.5%, while the services sector remained stable. Excluding agriculture, the index would have dropped 0.3%.

Data from IBGE confirms this scenario: services grew by just 0.1%, below expectations; industrial production fell 0.5%; and retail trade shrank 0.2%.

In June, the Central Bank raised the Selic rate to 15% annually, signaling a prolonged period of stable interest rates. Analysts predict a gradual economic slowdown despite the resilience of the labor market. The Ministry of Finance revised its growth projection for 2025 to 2.5%, with a marginal slowdown expected for 2026. However, these estimates do not yet account for the impact of the higher US tariffs on Brazilian products, which could rise from 10% to 50% in August.

The Central Bank’s Focus survey estimates GDP growth of 2.23% for 2025 and 1.89% for 2026. The IBC-Br is a leading indicator of GDP, based on data from agriculture, industry, services, and taxes on production.