Brazil's Economy

This is Brazil—the land of booming industries, economic crises, and remarkable comebacks. One moment, it’s a rising global power, the next, it’s facing recession, only to rebound again. But what makes Brazil’s economy so unpredictable—and where is it headed next?

With vast reserves of iron ore, oil, and natural gas, Brazil is one of the world’s key resource powerhouses. It’s also the largest producer of coffee, soybeans, and sugar, home to Latin America’s biggest startup hubs, and even the third-largest aircraft producer after Boeing and Airbus.

But is Brazil an economic goldmine full of opportunities, or a risky market trapped in cycles of instability? If you’re an investor, an entrepreneur, or just curious about global markets, this is an economy you can’t afford to ignore.
Welcome to Market Puzzle, where we piece together the intricate patterns of global economies and innovative business models. Today, we’ll break down Brazil’s economy, from its key industries and trade landscape to the opportunities and challenges shaping its future.

Brazil's GDP for 2023 stands at approximately $2 trillion, making it the largest economy in Latin America and the ninth-largest in the world. Today, Brazil ranks between Italy and Canada, but at its historic peak in 2011, it was even the seventh-largest economy globally.

Brazil benefited significantly from the global commodity supercycle in the early 2000s. However, in the second decade of the century, demand from a rapidly growing China slowed down. Combined with oversupply, this led to a significant decline in commodity prices for Brazil’s main export items—iron ore, soybeans, and oil.
In 2015, Brazil entered a deep recession, losing 7% of its GDP in just two years. The economy still hasn’t fully recovered, and GDP remains lower than a decade ago. Despite this, Brazil remains a critical player in global markets due to its size and resource wealth and continues efforts to diversify and stabilize its economy. In recent years, Brazil has returned to stable growth, with an annual GDP increase of around 3%.

With a GDP per capita of about $10,000, Brazil ranks far lower than other regional leaders like Chile and Uruguay. According to the World Bank classification, Brazil is an upper-middle-income country, but wealth distribution is highly unequal. The country faces severe poverty, with 27% of the population living below the poverty line, set at around 665 reais ($130) per month.

Brazil’s economy is highly diverse. Services account for about 60% of GDP, with banking, retail, and tourism playing significant roles. Industry represents 22%, driven by oil and mining. Manufacturing makes up 13%, with well-developed food, textile, and automotive sectors.

Many international car manufacturers have production facilities in Brazil. In buses and agricultural vehicles, Brazil has domestic brands. Agriculture contributes roughly 6%, but this figure understates its importance, as Brazil is a leading global producer of soybeans, coffee, and meat.

Brazil is a major player in global trade, leveraging its vast natural resources. It primarily exports metals and agricultural products, with iron ore alone accounting for around 16% of total exports. Brazil is the second-largest producer of iron ore globally, after Australia, supplying approximately 18% of the world’s total iron ore output.

This mineral is essential for the steel industry, which in turn is one of the most crucial materials used in construction, mechanical equipment, transportation, and many other sectors. The value-added contribution of the steel industry amounts to $3 trillion, equivalent to 3.8% of global GDP, making Brazil an integral part of the global value chain.

Despite being positioned at the start of the value chain with a high dependency on iron ore, Brazil also has a well-developed presence in high-value-added industries, such as aerospace. Brazil is competitive in airspace being one of only 8 countries globally that manufacture commercial jets.
The most significant manufacturer in Brazil is Embraer, a global leader in commercial and executive aviation, as well as the defense and security sectors. The company has become a top manufacturer of commercial jets with up to 150 seats and has almost 2000 aircraft in service.

Brazil’s agricultural sector plays a critical role in global food security. The country ranks first in global agricultural exports by volume and second only to the U.S. in value. Brazil is a leading exporter of soybeans, corn, coffee, sugarcane, wheat, meat, and more. The value of Brazil’s agricultural sector has been growing at an average rate of 8% annually over the past two decades and is expected to continue expanding.

Brazil’s export destinations are highly diversified. Iron ore and soybeans are primarily exported to China. Petroleum is shipped to Asia, Europe, the U.S., and Chile. Corn and coffee are exported worldwide. Cars are primarily sent to Latin American neighbors. Helicopters and airplanes go to the U.S. and even Poland.

Brazil’s international trade policies in 2024 were shaped by a combination of historically high tariffs and selective trade liberalization. As a Mercosur member, Brazil applies a Common External Tariff (CET) ranging from 0% to 35% on imports from non-member countries.

While this protects local industries such as agriculture and manufacturing, it also makes Brazil one of the least open major economies, with trade accounting for only 33% of GDP. This is significantly below global averages, highlighting both a challenge and a major opportunity for growth.

However, 2024 marked a turning point. The EU and Mercosur reached a political agreement to remove tariffs on over 90% of traded goods between the regions. European farmers are still protesting, so 2025 will reveal whether the agreement holds. Brazil also initiated trade talks with the United Arab Emirates, signaling efforts to diversify partnerships.

While these steps show promise, Brazil’s reliance on tariffs and non-tariff barriers continues to raise costs for businesses and limit competitiveness in global supply chains.

The Central Bank of Brazil employs a monetary policy framework that includes inflation targeting and a floating exchange rate, with an inflation target set at 3%. However, in recent years, Brazil has faced significant inflationary pressures, largely due to global disruptions caused by the COVID-19 pandemic and the war in Ukraine. Inflation peaked at 10% in 2022, forcing the Central Bank to raise the benchmark interest rate to 13.75%.

As inflation moderated to around 4.5%, the Central Bank began cutting rates, but by the end of 2024, the situation reversed. The Brazilian real depreciated by over 21%, reaching a record low of 6.29 per U.S. dollar in December. Rising inflation and a falling currency led the Central Bank to increase the interest rate again and in June 2025 it reached 14.8%.

The pressure on the exchange rate and inflation comes from multiple factors—high fiscal spending, budget mismanagement, a slowdown in Chinese demand for Brazilian exports, and growing global protectionism expectations. This combination of economic instability and policy uncertainty has shaken investor confidence, leading to a decline in Brazil’s stock market.

After hitting its historic peak in mid-2024, the BOVESPA index had been falling since September till the end of the year and only in January began to recover to be at its maximum again in May 2025. Investors are worried about the government’s ability to manage its budget deficit and control inflation.

The top-3 of largest Brazilian companies by capitalization include two banks and one oil company. Petrobras, a state-controlled oil giant, holds the top spot with a market cap of around $70 billion. Meanwhile, Nubank is the fintech unicorn, and already reached almost $60 billion  market cap after its IPO in 2021.

Brazil continues to attract strong foreign direct investment, despite past economic turbulence. FDI peaked in 2011, dropped during the recession, but has since stabilized. In 2023, the country received over $60 billion in FDI, and in the first half of 2024 alone, Brazil ranked second globally after the United States, attracting $31 billion in investments.

Most foreign investments are directed toward financial services, commerce, mineral products, and chemicals, but the government is actively pushing for more investment in renewable energy and green transition industries. ApexBrasil, the country’s investment promotion agency, supports FDI by helping investors navigate the Brazilian market. However, in terms of accessibility, its Chilean counterpart, InvestChile, offers a better user experience—if you're curious, check out my video about Chile’s economy to compare these Latin American markets.

Brazil’s credit ratings reflect the persistent economic instability that investors have grown accustomed to. Debates about the budget deficit and inflation are nothing new here. Moody’s, Fitch, and S&P have maintained Brazil’s rating at BB with stable or positive forecasts for years, signaling moderate credit quality but also a slightly increased risk of default.

Brazil ranks 124th in the Ease of Doing Business Index—a surprisingly poor result for one of the world’s largest economies. But what’s even more alarming is its 183rd ranking in the "Paying Taxes" category. Starting a business in Brazil is far from simple, and even established companies struggle with bureaucratic barriers throughout their existence.

The country’s tax system is notorious for its complexity, with dozens of direct and indirect taxes at the federal, regional, and municipal levels. Just imagine—companies in Brazil spend an average of 1,501 hours per year just to stay compliant with tax regulations. The total tax burden on businesses reaches 65% of profits, significantly higher than the global average of 40%. The standard corporate tax rate is 34%, which includes a 15% base rate, a 10% surtax on income above $40,000 per year, and a 9% social contribution tax.

When it comes to personal income tax, Brazil applies a progressive system ranging from 0% to 27.5%, but the threshold for the highest tax rate is less than $1,000 per month—a far lower cutoff than in most developed economies. The value-added tax (VAT) also adds to the burden, typically ranging between 17% and 20%, depending on the state.

While Brazil’s legal framework for property rights aligns with international standards, enforcement remains a major issue. Inefficiencies, judicial delays, and weak governance make property protection unreliable. The country ranks 80th in the International Property Rights Index, and securing a patent can take up to 10 years, far exceeding global norms. Corruption is another challenge, with Brazil ranking 104th in the Corruption Perceptions Index. The government has made efforts to combat corruption, simplify bureaucracy, and digitize processes, but substantial improvements have yet to be seen.

However, one area where Brazil thrives is its startup ecosystem. The government has introduced reforms to reduce regulatory barriers, lower tax burdens, and encourage venture capital investment. Combined with a massive and dynamic internal market, these factors have positioned Brazil as the leading startup hub in Latin America. The country now ranks 27th in the Startup Ecosystem Index, with São Paulo serving as the region’s main venture capital center.

Brazil has also produced between 17 and 24 unicorns, ranking 9th globally in terms of billion-dollar startups. Most of these companies operate in fintech, logistics tech, and e-commerce, with Nubank (Nu) being the most prominent. The neobank is now Brazil’s third-largest company by market capitalization and was ranked the country’s best bank by Forbes. Interestingly, most Brazilian unicorns focus primarily on the local market, sometimes expanding to other Latin American countries, but rarely beyond. The domestic market is so large that many companies achieve billion-dollar valuations without ever needing to expand globally.
The top five companies by revenue also reflect the structure of Brazil’s economy. Petrobras, the state-controlled oil and gas giant, leads the ranking, followed by JBS, the world’s largest meat processing company, and Vale, the top global producer of iron ore and nickel. The financial sector rounds out the list, with Itaú and Banco do Brasil, both major banking institutions, playing key roles in the economy. With Petrobras and Banco do Brasil being state-owned, it’s clear that government involvement remains a major force in Brazil’s corporate landscape.

In the first quarter of the 21st century, Brazil experienced rapid growth in the first decade, followed by a recession in 2014, triggered by the end of the commodity super cycle. The pandemic crisis of 2020, global supply chain disruptions, and growing protectionism have added further challenges. Yet, despite these shocks and ongoing political instability, Brazil's economy has returned to stable growth in recent years. A huge domestic market, natural resources, and strong entrepreneurial creativity continue to drive the economy—even in unfavorable conditions.

But major structural problems remain the biggest obstacles to sustained growth. Complex bureaucracy and high taxes restrict business activity, while also fueling the shadow economy, shrinking the official tax base. High import tariffs and non-tariff barriers further limit Brazil’s potential in global value chains, reducing the competitiveness of Brazilian companies in both local and international markets. At the same time, high government spending, a growing budget deficit, and underinvestment in infrastructure increase the risk of default and weaken investor confidence.

The key challenge for the government is to reverse these trends through effective reforms. Tax reform is already on the table but still requires Congressional approval and implementation. A proposal to cut public spending failed in 2024, but as debt levels rise and debt management costs increase, the government is under pressure to come up with a real solution. On the trade front, the EU-Mercosur agreement provides some optimistic expectations, but Trump's tariff war causes instability.

Another structural issue is Brazil’s lack of economic diversification and dependence on commodities. If Brazil wants its GDP chart to stop mirroring global prices of iron ore, oil, and soybeans, it must expand into other high-value industries. And there are many opportunities to do so.

Brazil is already one of the world's largest ethanol producers, with major opportunities in the biofuels market. The country is also investing in green hydrogen and other renewable energy sources to diversify its energy mix and reduce carbon emissions. These efforts align with global sustainability trends and position Brazil as a competitive player in the green economy.

Brazil’s agricultural sector presents both challenges and opportunities. On one hand, it faces serious environmental concerns, such as deforestation and land-use conflicts. On the other hand, it offers immense opportunities, fueled by rapid productivity growth, expanding global trade partnerships, and rising demand for sustainable food production.

The country’s agricultural tech ecosystem is booming, with over 1,500 startups working on AI-driven farming, bio-based solutions, and smart irrigation systems. With the government facilitating new trade agreements and sustainability initiatives, Brazil is evolving from an agricultural powerhouse into a global leader in agtech innovation and investment. For startups and investors looking for a high-growth market with global impact, Brazil's agriculture sector is fertile ground—in every sense.
Infrastructure development is another critical area of opportunity. Brazil’s transportation and logistics networks need major investment to improve efficiency and reduce costs. Public-private partnerships (PPPs) are expected to play a key role in funding and delivering these projects, unlocking new potential for business and trade.

One of Brazil’s greatest strengths is its people. With over 200 million citizens, it’s the 7th country in the world by population. However, its Human Capital Index (HCI) reveals that children born today are expected to reach only 55% of their potential productivity due to limited access to quality health care and education. Expanding opportunities in these areas is essential—not only for individual well-being but also for unlocking entrepreneurship, boosting productivity, and driving long-term economic growth.

Brazil’s aircraft production industry is also set for significant growth, fueled by large investments and technological advancements. Embraer, the country's leading aerospace company, has announced plans to invest  $3.5 billion in Brazil by 2030, focusing on expanding aircraft production and developing innovative technologies, including electric vertical take-off and landing (eVTOL) aircraft. These investments strengthen Embraer’s commercial and executive aviation segments.

Brazil’s strategic partnerships with international aerospace giants and its focus on sustainable aviation solutions position the country as an emerging hub for aerospace innovation and production. And who knows? With Boeing facing serious setbacks and global supply chains shifting, Embraer may just seize the moment and deliver the next generation of bestselling aircraft—made in Brazil.