Commentary

Brazil’s growth, challenges and opportunities

January 30, 2025

Brazilian economy, a 1 Real coin over a line chart graphic in a newspaper.

Brazil, the largest economy in Latin America, faced a mixed economic outlook in 2024. With low population growth, inflationary pressures and government overspending, the country navigated through significant challenges. However, certain sectors such as agriculture exhibited resilience, and the government, under President Luiz Inácio Lula da Silva (commonly known as “Lula”), worked on implementing policies to manage inflation and drive economic recovery.

In this recap, we will review Brazil’s economic performance, inflation dynamics, the effects on various sectors and explore potential opportunities for 2025.

Population growth and demographic trends

As Brazil’s population growth slows and the proportion of older individuals rises, the country will face a shrinking working-age population. This poses a significant challenge for the labour market as fewer people will be available to fill jobs and contribute to the economy.

Two line graphs illustrating population growth. Graph 1 shows total population growth of Brazil with a predicted growth past 2025. Graph 2 shows population growth of Brazil by broad age groups, with predicted growth per group past 2025.

2024 performance

Brazil went through a tough year in 2024 with a yearly performance of -29.47% (USD) (MSCI Brazil Index). Consumer discretionary performed the worst out of all sectors with -44.23% (USD). The main driver of the weak performance was linked to a weak Brazilian real. Brazil was one of the first countries to start reducing rates back in August 2023, while the United States had just finished increasing rates back in July 2023.

The currency performance against the USD was nearly -22%, and the currency remains under pressure, reflecting investor skepticism over Lula’s ability to address Brazil’s ballooning budget deficit, reaching a high of 10% of GDP in July 2024. The country faced false hopes when attempting to contain inflation as it reversed back in April 2024. Between January and April, inflation decreased by almost 80 bps, only to shoot up by 110 bps (April to December 2024), ending the year at 4.83% as per the Central Bank of Brazil.

MSCS Brazil sector performance

Sector weights
Sectors 01/31/202401/31
2024
12/31/202412/31
2024
2024 Return (USD)
MSCI Brazil Index 100.0% 100.0% -29.47%
Finance 27.4% 35.3% -38.40%
Energy 22.4% 18.8% -27.20%
Materials 17.0% 14.4% -38.60%
Industrials 9.9% 9.9% -24.30%
Utilities 8.0% 9.2% -30.47%
Consumer staples 7.7% 7.1% -32.06%
Healthcare 2.4% 2.0% -41.51%
Communications 2.6% 1.6% -32.18%
Consumer discretionary 1.9% 0.9% -44.23%
Information technology 0.9% 0.8% -37.53%

Source: Bloomberg

Despite signs of inflation increasing, it took the Central Bank of Brazil until September to increase the Selic rate by 25 bps, followed by 50 bps in November and a final increase of 100 bps in December. Starting the year off with a sentiment of rates reducing to a swift change of aggressive increase caught investors by surprise.

MSCI Brazil Index sector weights (2024 – present)
Line graph showing the different MSCI Brazil Index sector weights over 2024 to present day.
Source: Bloomberg

A company we like in Brazil: Vivara Participações S.A. (VIVA3.SA)

Vivara is Brazil’s number one jewelry retailer with around 435 stores and approximately 21% market share. Vivara was launched in 1962, with new segments such as Life by Vivara, watches, accessories and fragrances completing the product range. Vivara enjoys high returns and strong consumer brand recognition.

During 2024 the company suffered a performance of -46.3% (USD). The performance was attributed to a weak consumer and unexpected management changes. The company is reorganizing the selling space (optimizing the stores) and improving customer experience. It also changed the inventory level in order to support the same-store sales growth acceleration seen in recent quarters (Q3 +13.5%, Q2 +11.6%, Q1 +9.4%) and to reduce stockouts.

SWOT analysis
Strengths

  • Market leader, benefiting from scale
  • Brand recognition with over 60 years in the industry
  • Close to 80% of vertical product integration (lower cost)
Weakness

  • Cannibalization of stores between Life and Vivara brands
Threats

  • Macro and political instability
  • High exposure to gold and silver prices
Opportunities

  • Expanding outside Brazil (Latam countries)
  • Rapid adaptability of life brand
  • Store expansion (aiming for 70 in 2025)

SWOT analysis table

Global Alpha Capital Management Ltd.
January 30th, 2025