Fact box
Brazil 2026
Growth: 1.8 per cent
Inflation: around 4 per cent
Key risk: general election in October
Mexico 2026
Growth: 1.3 per cent
Inflation: 4.3 per cent
Key risk: United States–Mexico–Canada Agreement review
Brazil enters the year with an overheated economy after several years of procyclical fiscal policy. Growth slowed at the end of 2025 and is expected to fall to 1.8 per cent in 2026. Public debt is rising quickly, and the International Monetary Fund forecasts that the level will reach 95 per cent of gross domestic product this year. Elevated inflation limits how much the central bank can cut interest rates.
The October general election is set to dominate Brazil’s political and market dynamics. The race remains open, with São Paulo Governor Tarcísio de Freitas emerging as a leading challenger to President Luiz Inácio Lula da Silva. The entry of senator Flávio Bolsonaro has increased political tension and unsettled markets.
“Markets are watching whether Brazil will move towards or away from more market‑friendly policies, and that uncertainty will continue to drive asset prices in the months ahead”, says Erik Meyersson, Chief Emerging Markets Strategist at SEB.
Mexico also faces headwinds as fiscal consolidation slows growth. The economy expanded by only 0.5 per cent in 2025 and is expected to grow by 1.3 per cent this year. Strong exports, including increased sales of technology‑related products, have helped offset some of the weakness, but slowing employment growth and tighter public finances weigh on activity.
Inflation is expected to rise to 4.3 per cent in 2026, leaving limited room for the central bank to reduce interest rates. Trade policy adds another layer of uncertainty. The review of the United States–Mexico–Canada Agreement in July is likely to focus on rules of origin and imports from China. After a strong 2025, the Mexican peso is forecast to weaken as remittances fall and trade uncertainty increases.