Evolution of 2022 GDP growth forecasts and components (Ukraine crisis)

War in Ukraine will complicate Brazil’s already-challenging operating environment

MNCs will see significant challenges navigating the operating environment throughout 2022 and 2023, particularly regarding inflation. MNCs should expect inflation to converge to the central bank target (3.5%) only in Q1 2024. Additionally, a price-sensitive environment and rising producer prices will complicate the pass-through effect. As a result, firms should assess how rising costs will impact the demand for their products and consider adjusting their pass-through strategy accordingly.


The conflict between Ukraine and Russia has translated into a significant shift in Brazil’s operational environment. As a result, we have revised Brazil’s GDP from 0.7% to -0.2% for 2022 due to higher inflation expectations, demand destruction, and ongoing supply chain bottlenecks. Currently, we still expect Brazil to grow 1.5% in 2023. The Ukraine crisis will fuel inflation due to elevated commodity prices, leading to higher energy and electricity prices. Moreover, because natural gas is used as a raw material for fertilizer production, inflationary pressures will also be concentrated around food prices. As a result, Brazil will experience another year of heightened inflationary pressure significantly above the central bank’s inflation target, restricting consumer spending for the year. The Russia-Ukraine conflict also increases the odds that the global economy will grow at a slower pace. With much of this year’s economic growth stemming from export opportunities, worse economic performance by major global markets will hinder Brazil’s growth prospects. There remains upside for agricultural exports; however, the slowdown of industrial production in many critical European markets will limit manufacturing exports, hindering manufacturing and industrial production growth.

Our View

We always expected Brazil to experience a significant economic slowdown in 2022 relative to 2021, but the Russia-Ukraine crisis will likely worsen the country’s macroeconomic challenges. The Russian invasion of Ukraine will further exacerbate supply chain problems caused by the COVID-19 pandemic, leading to significantly higher energy and food prices. As a result, Brazil will see, for the second year in a row, much-higher-than-expected inflation in 2022, forecasted to average 10.2%. Prospects for significantly higher inflation will negatively impact domestic demand, leading to a contraction in consumer spending (-0.3%), the main economic engine of the Brazilian economy. In addition, prospects for lower domestic demand—combined with ongoing supply disruptions—will lead to a decline in domestic investment. Even though greater commodity exports are likely, higher inflation, lower consumer spending, and investment expectations will lead Brazil to contract this year.

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