Brazil’s growth still a strength, but reforms needed, Goldman says
Foreign investors are returning, but high interest rates are a concern
Brazil’s economic growth, despite a long monetary tightening cycle, remains one of the country’s key advantages. However, this expansion could be far greater if Brazil pushed forward with structural reforms, said Goldman Sachs executives during a visit to the country last week.
In an interview with Valor, Richard Gnodde, vice chairman of Goldman Sachs, and Kunal Shah, co-CEO of Goldman Sachs International and co-head of the firm’s Fixed Income, Currency and Commodities (FICC) division, said Brazil has returned to the radar of foreign investors. This can be seen in the inflow of international funds into the local stock market. Still, the high level of interest rates remains a concern, as it continues to burden Brazilian companies.
“I think Brazil’s remaining advantage is growth. The economy could double or triple over time. The right structural reforms would help unlock that growth. For me, that’s the most important thing—growth would allow the country to overcome its fiscal challenges. Not every economy has this opportunity,” Mr. Gnodde said.
“Growing 2.3% in a still very challenging macro environment shows the strength of the private sector,” added Mr. Shah, who visited Brazil for the seventh time and gave his first interview to a Brazilian media outlet.
Brazilian economic challenges, its companies and sectors, and the ups and downs of the local economy are well known to international investors, Mr. Shah said. “Right now, they are beginning to allocate funds back to Brazil. Part of that is due to macro fundamentals. Interest rates are very high while inflation is falling. The latest inflation reading came in below market expectations. So, when you look at real interest rates, Brazil has one of the highest among major global economies. And with a relatively stable currency, that’s usually a good signal for the exchange rate and fixed income flows. It also boosts confidence,” he said. He added that equity investors and others willing to take on currency risk are likely to follow—something already being observed.
Fiscal limits
Mr. Shah said Brazil’s fiscal situation may have reached a limit, requiring a shift to avoid recessionary or unstable fiscal scenarios. “That’s where checks and balances kick in, and you start to see the cycle reverse. I think that’s why optimism is growing — because certain limits are being reached,” he said.
Still, he warned there are many questions about when there will be room for interest rate cuts. “While high rates are good for capital inflows, they place a huge burden on companies and the economy. It’s impressive how resilient the economy has been, and how growth remains strong even with such high rates. Our forecast for Brazil is 2.3% growth—above consensus. This cycle is lasting longer than many expected. Part of it is due to still-high fiscal spending, which worries investors,” Mr. Shah noted.
The 2026 presidential election is also on investors’ radar, he said, as they begin to evaluate “what changes might come or whether there will be continuity.”
By Fernanda Guimarães via Valor International