Brazil Economic August26 Eng

Solange Srour Head of Brazil Macroeconomics

Débora Nogueira Brazil Economist

Victoria Brant Roquetti Research and Analysis Associate

Chief Investment Office GWM Investment Research

This report was prepared by UBS Brasil Administradora de Valores Mobiliários Ltda. Please note the important disclaimer notices at the end of the document.

Highlights • With the resumption of attacks between the US and Iran, oil has become volatile again and flows through the Strait of Hormuz are virtually zero. Low Chinese imports are helping, for now, to balance the market.

• In the US, unemployment remains low, consumption remains resilient, and inflation moderated in June.

• Kevin Warsh avoided giving clear signals after a meeting with three pro-hike dissenters. The curve delayed pricing hikes but still embeds two hikes through mid-2027.

• The ECB maintained a hawkish tone, consistent with another rate hike, while the BoJ intervened to curb further yen depreciation.

• In Brazil, activity lost momentum but still points to GDP growth close to 2% this year.

• The labor market remains tight, although wages have shown recent moderation.

• July inflation surprised to the downside, reducing the 12-month rate from 4.8% to 4.5%. The improvement was broad-based and reached core measures, although inflation remains far from the target.

• Copom should cut the Selic by 0.25 p.p., to 14%, supported by a stable BRL, despite inflation still being far from the target.

• The recovery in the trade balance reduced the current account deficit to 2.5% of GDP.

• Fiscal accounts remain deteriorated, with a nominal deficit of 10% of GDP and gross debt at 81.9% of GDP, creating a major challenge for the next administration.

• In the polls, the incumbent remains ahead, three months before the runoff decision.