By Marcela Ayres
BRASILIA, Nov 6 (Reuters) – Brazil’s top lenders have slashed their economic growth forecasts for next year, threatening reelected President Luiz Inacio Lula da Silva’s pledge to honor his campaign spending promises while also returning the budget to surplus.
When it submitted the budget bill for next year to Congress in August, Lula’s leftist administration projected gross domestic product growth of 2.46% in 2027.
Economists now see activity expanding at a mere fraction of that pace as uncertainty about Lula’s next government, high interest rates and tighter financial conditions weigh on demand.
Bradesco, one of Brazil’s leading banks, lowered its 2027 GDP forecast to 0.4% on Friday and brokerage and financial platform XP cut its estimate to 0.3%. Both were previously expecting growth of 1.0% next year.
The revisions mirrored moves by Itau, Brazil’s largest lender, and BTG Pactual, which last week reduced their GDP growth forecasts to 0.5% and 0.6%, respectively.
All four cited expectations that Brazil’s punishing interest rates — the central bank ended a run of cuts this week and kept its benchmark rate at 13.75% — will remain elevated for longer due to a worsening inflation outlook.
Growth within the range of the four forecasts would mark the weakest performance in Latin America’s largest economy since 2016, excluding 2020, when the COVID-19 pandemic hit.
It also would add to longstanding concerns over gross debt levels of nearly 83% of GDP — or 95.2% under the International Monetary Fund’s metrics — well above most emerging-market peers.
BROAD SELLOFF
Lula’s surprise victory over right-wing challenger Flavio Bolsonaro in an October 25 runoff election triggered a sharp weakening of Brazil’s real currency and a surge in long-term borrowing costs.
“The combination of tighter financial conditions, weaker confidence and slower credit growth should deepen the loss of momentum over coming quarters,” Bradesco said.
More immediately, the weaker outlook heightens the stakes for Lula as he considers his next government’s economic program.
With mandatory public spending climbing rapidly, the government has relied heavily on assumptions of stronger tax revenue growth to improve public finances. A sharper-than-expected economic slowdown would undermine that strategy.
The Finance Ministry said it was reviewing its macroeconomic assumptions and could not comment before the expected release of its updated forecasts later this month.
In a fiscal risk report released this week, the Treasury said GDP growth was “the largest source of uncertainty for revenue estimates,” calculating that every 1-percentage-point shortfall in growth would cut federal tax revenues by 16.6 billion reais ($3.02 billion).
Before the recent deterioration in the outlook, the government had projected an effective primary surplus of 18.6 billion reais in 2027, equivalent to 0.13% of GDP and the first effective surplus since 2022.
That projection was made before Lula issued several election campaign pledges, including a larger Bolsa Familia welfare program, direct payments to micro-entrepreneurs and expanded student benefits.
Each of the four institutions that cut their GDP forecasts continues to project a primary deficit next year, ranging from 0.1% to 0.6% of GDP.
BTG said the outlook would depend heavily on whom Lula chooses for his economic team as well as his fiscal strategy.
“The intensity of the slowdown itself depends on the fiscal response,” it said.
($1 = 5.5039 reais)
(Reporting by Marcela Ayres; Editing by William Schomberg and Paul Simao)



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