Brazil's biggest banks have slashed their growth forecasts for 2027, warning that reelected President Luiz Inacio Lula da Silva will struggle to honour his campaign spending promises while returning the budget to surplus.

Bradesco, one of Brazil's leading banks, lowered its 2027 GDP forecast to 0.4% on Friday, and brokerage and financial platform XP cut its estimate to 0.3%. Both had previously expected growth of 1.0% next year.

Four banks, one direction

The revisions followed similar cuts last week by Itau, Brazil's largest lender, which reduced its forecast to 0.5%, and BTG Pactual, which cut its estimate to 0.6%.

When it submitted next year's budget bill to Congress in August, Lula's government projected growth of 2.46% in 2027 — roughly five times the pace the banks now expect.

Rates to stay high

All four cited expectations that Brazil's punishing interest rates will stay elevated for longer. The central bank ended a run of cuts this week and held its benchmark rate at 13.75%, raising its inflation forecast.

Growth in the range the four banks now forecast would be the weakest in Latin America's largest economy since 2016, excluding 2020, when the Covid-19 pandemic hit.

Debt and revenue at risk

Debt is also a concern: gross public debt stands at nearly 83% of GDP, or 95.2% under the International Monetary Fund's measure.

The Treasury warned in a fiscal risk report this week that GDP growth was "the largest source of uncertainty for revenue estimates", calculating that every one-percentage-point shortfall in growth would cut federal tax revenues by 16.6 billion reais ($3.02 billion).

The Finance Ministry said it was reviewing its macroeconomic assumptions and could not comment before updated forecasts are released later this month.