Brazil's Finance Ministry, the Fazenda, now expects the economy to grow 2% this year, down from the 2.3% forecast in July. The cut lands on paychecks: on a monthly salary of 3,000 reais, a 2% raise means 60 reais more, not the 69 reais of the old forecast. That is 108 reais less over a year, and slower growth usually brings fewer new jobs and tougher salary negotiations.

The revision came in the Macro-Fiscal Bulletin released on Tuesday (22). Services, the sector that runs from barbers to delivery apps, lost the most ground, with the projection cut from 2.4% to 1.8%, which the government blamed on a weak first half and the slow pass-through of high interest rates to demand. Industry slipped from 2.1% to 1.7%, while farming rose from 1.8% to 2.8%.

The weight of household debt

Household debt is the core reason for the cut. "Although household indebtedness remains stable as a share of income, commitment to debt service reached the highest level of the historical series in the second quarter," the ministry said. In plain terms: the slice of the paycheck that goes to installments has never been larger, leaving less for shopping, restaurants and travel.

Not everything points down. The bulletin cites a still-firm job market and the wider income tax exemption, which leaves more money in workers' pockets in the second half of the year, as factors cushioning the slowdown.

In brief: the Macro-Fiscal Bulletin comes out every two months from the ministry's Economic Policy Secretariat and carries the official growth and inflation estimates that guide the federal budget. The GDP it refers to is the sum of everything the country produces in a year. Growth of 2% means producing 20 reais more for every 1,000 reais generated the year before.

Inflation and 2027

The inflation forecast for this year also fell, from 5.1% to 4.9% for the IPCA, Brazil's official consumer price index. The change is small on a shopping bill: a 500-real grocery basket would end the year at 524.50 reais instead of 525.50. July's IPCA came in below expectations, helped by calmer food-at-home prices.

For 2027, the growth forecast dropped from 2.5% to 2.3%, while inflation was revised up from 3.6% to 3.8% because of El Niño pressure on next year's harvest. According to Reuters, the ministry now assumes a slightly higher average Selic, the central bank's benchmark rate that sets the price of credit and installments, with a slower pace of cuts. Oil also weighs: the average Brent projection rose from 79.2 to 87.7 dollars a barrel this year, a consequence of the conflict between the United States and Iran.