Market cuts GDP and raises inflation for 2027 with high interest rates and fiscal laxity

The Brazilian economy in the medium term horizon is beginning to show clear signs of slowdown, according to reports released last Friday (6), according to an investigation by Revista Oeste. Large financial institutions significantly cut their projections for the Gross Domestic Product and raised their inflation estimates, pressured by the high level of the basic interest rate and fiscal uncertainties.

According to InfoMoney data, Brazil's growth in 2027 is now projected in a narrow band between 0.3% and 0.5%. In the same vein, reports from Revista Oeste detail drastic revisions of houses such as XP Investimentos, which reduced the 2027 GDP from 1.0% to 0.3%, and Bradesco, which cut the same projection from 1.0% to 0.4%.

The economic tightening scenario also affects the previous year. According to InfoMoney, Bradesco and XP Investimentos revised the 2026 GDP to 1.5%, while Itaú adjusted the expectation to 1.6%. The weakening of activity is already reflected in household consumption, which, according to Bradesco via Revista Oeste, registered a drop of 0.4% in the second quarter.

Parallel to the loss of economic dynamism, inflation measured by the IPCA gains strength for 2027. XP raised its inflation projection for that year from 4.4% to 5.5%, while Bradesco increased the estimate from 4.1% to 5.3%, according to data reported by Revista Oeste.

What changes for the investor

The environment of downward revisions in growth and high inflationary persistence requires increased caution in asset allocation. For those operating in the fixed and variable income markets, the combination of restrictive interest rates and lack of control over public accounts changes the risk pricing of Brazilian assets, directly impacting corporate planning and the attractiveness of long-term investments.

X-Trader Analysis: what changes for those who trade

Cutting the 2027 GDP to something close to 0.3% and raising inflation above 5% is the combination that the market fears most: a weak economy with rising prices. This makes any interest rate cut difficult and puts pressure on the DI curve, the dollar and the stock market at the same time. For those who operate future interest rates and mini-indexes, revisions of this size tend to appear in the price little by little, with each new report. Following the Focus Bulletin on Mondays helps to measure this change in expectations.

Automatically translated from Portuguese.