Brazil’s economy recorded solid growth in the first quarter of 2025, driven by strong agricultural output, household spending, and investment activity, even as interest rates continued to rise.

According to a Reuters poll of economists, the official statistics agency IBGE reported on Friday that the largest economy in Latin America’s GDP grew 1.4% from January to March compared to the previous quarter.

GDP expanded 2.9% from a year earlier, below expectations for a 3.2% increase.

On the supply side, agriculture stood out with a 12.2% gain from the previous quarter, fueled by a bumper soybean harvest.

Services, roughly 70% of Brazil’s economy, expanded 0.3% amid a tight labour market, while industrial output slipped 0.1%.

On the demand side, investments measured by gross fixed capital formation stood out with a 3.1% rise from the prior quarter.

Household consumption also contributed with 1.0% growth, supported by measures from leftist President Luiz Inacio Lula da Silva to boost disposable income, including a minimum wage hike. Government spending increased by 0.1%.

The central bank’s vigorous monetary tightening, which has lifted the benchmark Selic interest rate by 425 basis points since September to an almost 20-year high of 14.75%, was the reason for the robust economic performance.

The government projects that GDP growth will drop to 2.4% in 2025 from 3.4% last year, indicating that rising interest rates will have a greater impact on economic activity in the second half of the year.

Source: Reuters

Image Credit: Financial Times