Paulo Gala: GDP growth will surprise once again.

247 - The Brazilian economy may outperform the most commonly used estimates by the market and international organizations in 2026, according to economist Paulo Gala. In his assessment, the pace of activity is likely to exceed the level indicated at the beginning of the year by projections such as those in the Focus bulletin and the Central Bank.

The analysis was made by Gala in a recorded interview with TV 247, in which he stated that "whenever an economist makes that January forecast, they need to be careful" and recalled a recent series of errors in the beginning-of-year estimates: "Every forecast at the beginning of the year was: 'Oh, Brazil will grow 0,8%, it will grow 1%, then it grew 3,5%'". 

Projections indicate a slowdown, but Gala sees room for surprises.

The most widely accepted projections for 2026 pointed to GDP growth between 1,6% and 2%, based on estimates from the International Monetary Fund and the average of expectations gathered in the Focus bulletin. Paulo Gala considered that this type of calculation, made at the beginning of the year, tends to reflect greater caution and recalled the numbers released during that period: "The Central Bank itself made a more pessimistic forecast, it expects growth of 1,6% in the last report it released, the Focus, which is the market report, has a forecast of 1,8%."

From that point, he presented his central scenario: “I’m a little more optimistic, to tell you the truth. I think it’s possible to grow by at least two, maybe a little more than two.” The economist also argued that, if the result is confirmed, the recent period could support a higher average for the current government cycle. “It will be the best average growth since 2007, 2008,” he said, commenting on the possibility of a sequence of years with performance above 3% in part of the period, a theme he related to the historical pattern observed in previous governments.

Falling interest rates and social policies as drivers of consumption.

Gala's main explanation for GDP growth above consensus was the combination of reduced credit costs and maintained public transfers that support domestic demand. "First, because interest rates will fall. I think this interest rate cut is a done deal," he stated. Then, he indicated the trajectory he expected for the benchmark interest rate: "I think the Selic rate should fall to around 12, 12,5."

Along the same lines, he pointed to the strength of social policies and income mechanisms as factors that, according to his interpretation, have sustained growth in recent years and are likely to continue influencing it in 2026. "Social policies remain very strong," he stated, and cited programs and expenditures that, in his assessment, help maintain consumption: "It was Bolsa Família, it was BPC, the pensions themselves, income transfers for those earning up to two or three minimum wages."

Gala also mentioned measures and rules that, according to him, would amplify the income boost throughout the year. Among the examples, he cited "the income tax exemption for those earning up to R$ 5.000" and the adjustment of the minimum wage based on a system that, as he said, combines inflation and GDP. He detailed the effect of the recent adjustment: "Last year we grew something like 2,5%, plus four years of inflation, resulting in a minimum wage adjustment of almost 7%."

In explaining the mechanism, Gala linked these expenses to an increase in aggregate consumption: "We have over R$ 1 trillion in public transfer expenses that are indexed to the minimum wage." And she concluded with the effect she expects on economic activity: "All of this... injects demand, heats up the economy."

Why estimates can become outdated throughout the year.

A recurring point in the economist's speech was the idea that forecasts formulated at the beginning of the calendar year often fail to capture rapid changes in interest rates, inflation, and income, which can distort the interpretation of GDP. He cited another recent example to reinforce this caution: "Last year the forecast was: 'Oh, inflation in Brazil will be six, but inflation was 4,2'."

Based on these elements, Gala argued that growth in 2026 does not need to repeat the pace observed in previous years to still exceed the median of projections. "It won't be the 3,5% growth of recent years, but I think we can foresee growth of 2%, maybe even a little more," he said.