Eurasia Group's Top Risks of 2025
Top Risks is Eurasia Group's annual forecast of the political risks that are most likely to play out over the course of the year. This year's report was published on 6 January 2025.
Top Risks is Eurasia Group's annual forecast of the political risks that are most likely to play out over the course of the year. This year's report was published on 6 January 2025.
IMPLICATIONS FOR Brazil
Among the top geopolitical risks in 2025, the most impactful for Brazil are those causing an unfavorable global backdrop for emerging market economies. (For the full list of the top global risks this year, please see Eurasia Group's Top Risks 2025.) Brazil enters 2025 under significant financial strain driven by mounting concerns over its fiscal accounts. The inability of President Luiz Inacio Lula da Silva's administration to assuage investor concerns over rising debt levels contributed to a 27% decline in the currency in 2024, which factored into the decision by the Brazilian Central Bank to raise interest rates. Should the global economic background deteriorate under these conditions, the risk of Brazil entering a new recession that upends politics ahead of a hotly contested election in 2026 would grow.
- Top Risk #4 (Trumponomics) and Top Risk #7 (Beggar thy world) point to Brazil's most significant vulnerabilities in 2025. Brazil would feel the effects of potential increases in US interest rates and inflation, given its substantial debt (78% of GDP) and low savings rate (about 15% of GDP). Brazil has been borrowing to cover more than just investments; with a deficit of nearly 8% of GDP, it has turned to financial markets to fund pension outlays and essential services.
- Should Trump's policies on immigration, trade, and fiscal management contribute to higher inflation and a stronger dollar, Brazil's economic woes would deepen. The Brazilian real could depreciate further, fueling inflationary pressures—which would curtail the central bank's ability to cut interest rates in 2025 after a tightening cycle. Top Risk #7 (Beggar thy world) and Box 3 (Middle East squeezed by low oil) highlight the potential for lower global growth caused by tit-for-tat trade wars. That would weigh on the prices for the commodities that account for the bulk of Brazil's exports; oil prices under $60 a barrel would depress revenue from oil production.
- How the Lula administration addresses this economic scenario will be crucial. The Independent Fiscal Institute estimates that primary surpluses of 2.4% of GDP are needed for debt stabilization, but an adjustment of this magnitude would require inconceivable spending cuts from Lula. While his administration will enact some cuts to discretionary spending and measures to bolster revenue, it is unlikely to do enough to ease market stress that could fuel more inflation by weakening the currency.
- A full-blown economic crisis is unlikely. Growth is not expected to collapse in 2025, and the central bank will remain independent and stick to its inflation-targeting mandate. But a more negative external global backdrop will spur greater concern in the Presidential Palace about Lula's electoral chances in 2026 and spur policy deterioration. A negative global backdrop would increase the odds of a market-friendly opposition candidate winning in 2026 but also stoke antiestablishment sentiment and open the door to an unexpected outcome.
- Top Risk #3 (US-China breakdown) points to the economic threats posed by geopolitical tensions, but also, opportunities.
- The potential inundation of the Brazilian market with Chinese goods will undermine domestic producers in key sectors like petrochemicals, manufacturing, and apparel. Chinese industry accounts for about a third of the world's manufacturing output and has swiftly advanced in higher-value-added sectors, as shown by its dominance in electric vehicle sales and solar energy inputs. Brazil lacks the capacity to erect trade barriers comparable to those of the US, Europe, and other regions, making it more exposed to this massive flow.
- But Brazil will also benefit from cheaper Chinese inputs which will prove to be deflationary, and it may also benefit from a US-China trade war. In Trump's first term in office, Brazil's agricultural exporters won market share when China taxed US agricultural products in retaliation against US tariffs. Even though Brazil is unlikely to gain as much from a new trade war given that China is already importing about 60% of all the soybeans it needs from Brazil, it may still derive some marginal benefit.
- Regarding Top Risk #2 (Rule of Don), while primarily a concern about domestic US politics, Brazil must remain vigilant about Trump's approach and policies to brace for possible disruptions.
- Brazil is likely to attract Trump's attention for several reasons. As the country will hold the BRICS rotating presidency in 2025, any moves it makes to challenge the dollar's dominance or support China could provoke retaliatory actions. Additionally, the potential sentencing or imprisonment of former president Jair Bolsonaro, a Trump ally, could further ignite political polarization, possibly prompting Trump or members of his administration to express solidarity with Bolsonaro. An additional complication could arise if a Supreme Federal Court-sanctioned ban on X, which has been lifted, poisons the bilateral relationship with the US, given Elon Musk's prominence in Trump's orbit.
- Currently, Brazilian officials lack robust communication channels with the incoming US administration, which could hinder bilateral engagement. Nonetheless, the robust trade, investment, and societal exchanges between Brazil and the US—the two largest democracies in the Western Hemisphere—will persist. With direct investments exceeding $100 billion, the US is one of Brazil's largest investors. However, without effective dialogue, many opportunities for collaboration could be missed, and occasional conflicts may become unavoidable.
- While economic risks loom larger for Brazil, it is obviously not immune to 2025's Top Risk #1 (The G-Zero wins). But, once again, the risks come with some opportunities.
- On the one hand, the weakening of multilateral institutions reduces Brazil's influence and increases its vulnerability in a world shifting away from cooperation toward greater competition. A notable example is the US's anticipated withdrawal from the Paris Agreement in 2025, which could overshadow the UN climate conference in Belém. Without substantial military or economic leverage, Brazil faces greater exposure to the shifting dynamics of international balances of power.
- However, this geopolitical uncertainty also opens opportunities for Brazil. As countries intensify their pursuit of food and energy security, Brazil can potentially integrate into new production chains or expand into emerging consumer markets. Concerns about energy and food security are likely to grow in a world shaped by Top Risk #9 (Ungoverned spaces), Top Risk #5 (Russia still rogue), and Top Risk #6 (Iran on the ropes).
- Lastly, Top Risk #10 (Mexican standoff) presents an intriguing economic opportunity that may benefit Brazil amid geopolitical downturns. Declining institutional stability in Mexico and uncertainty over the future of the US-Mexico-Canada Agreement could shift long-term investments to Brazil, especially those of multinationals seeking economies of scale to better serve the Latin American consumer market. Brazil's institutional stability and ongoing reforms position the country as an attractive alternative given the emerging uncertainties in Mexico. However, the biggest obstacle to realizing such an opportunity stems from a likely scenario of greater economic difficulties translating into higher real interest rates and policy deterioration ahead of a consequential 2026 presidential election.
- Among the Red herrings, two have implications for Brazil related to the EU-Mercosur trade agreement. This agreement, whose commercial chapter is expected to be implemented by the end of 2025, exemplifies how the EU can still advance strategic economic projects despite internal divisions (such as the opposition of France and Poland) and how globalization persists despite the geopolitical recession. The benefits for Brazil will accrue gradually, with tariff reductions occurring over fifteen years. According to a study by government think tank IPEA, the direct effects of the agreement should raise GDP by about 0.46%, with a 1.49% increase in gross fixed capital formation. Other indirect gains are expected owing to reduced production costs that enable greater participation in global value chains.