Brazil’s National Industry Confederation (CNI) has lowered its 2026 GDP growth forecast from 2% to 1.6%. The engine that stalled is the one that generates the most jobs and relies most heavily on cheap credit: manufacturing is set to shrink—not grow—for the first time in this high-interest-rate cycle.
Why Did CNI Cut Its 2026 GDP Forecast?
Because high real interest rates have battered domestic consumption. Released on Wednesday (28), CNI's 3Q26 Economic Report now projects a 0.7% contraction in manufacturing, reversing its previous forecast of 0.6% growth. That marks a 1.3 percentage point turnaround.
"So, companies that rely more heavily on the domestic market are taking a severe hit from the interest rate."Mario Sergio Telles, CNI's Director of Industrial Development, October 2026
The Selic rate is projected to end 2026 at 13.25% per year. With CNI estimating inflation at 5.15%, that puts real interest rates near 9%—almost double the neutral rate. In this environment, expanding a production line or financing a purchase on installments no longer makes financial sense for a large portion of domestic economic players.
Affected sectors include textiles, processed foods, auto parts, steel, and home appliances—industries that manufacture for the domestic market, operate on tight margins, and are highly sensitive to the cost of credit for both producers and end buyers.
Who Lost and Who Gained in This Revision?
The report splits the economy into two camps. On one side are exporters—agriculture and extractive industries, which are less dependent on domestic interest rates. On the other are sectors that rely on Brazilian consumers: manufacturing and retail.
Upwardly revised from 1.8%—supported by the safrinha corn crop and firm external commodity prices.
Down from 1.9%. Credit-dependent retail is slowing alongside manufacturing.
Revised from 2%. Construction (1.5%) is propping up part of the sector; manufacturing is dragging it down.
From +0.6% to −0.7%: the sharpest turnaround. Fueled by expensive credit, competitive imports, and weak domestic demand.
In the labor market, CNI projects more modest job growth: employed population is expected to grow 1.2%, and the unemployment rate is projected to end the year at 5%. Real wage mass is still expected to rise 4.6%—a sign that employment is holding up, even as the pace of formal hiring slows alongside the manufacturing sector that employs the most workers.
The Equation Behind the Industrial Downturn
CNI points to four simultaneous pressures on manufacturing. Each would be manageable on its own, but combined, they turned the forecast upside down:
Agriculture acted as the counterweight that prevented an even sharper downward revision to GDP. Without agriculture growing 2.5% and a projected trade surplus of $77.3 billion ($386.7 billion in exports, according to the report), the economy would be in a much tougher spot. Brazil continues to export well; the bottleneck is domestic.
For manufacturing companies, this mechanism squeezes both sides: on the revenue side, customers facing expensive credit buy less; on the cost side, imported inputs rise with a depreciated exchange rate. Margins are squeezed on both fronts simultaneously.
What Thursday's Trading Session Is Already Reflecting
The pricing logic is straightforward: with slower growth and high real interest rates, the present value of cash flows for consumption-dependent companies shrinks mechanically. As we showed in our analysis of August's industrial contraction, signs of slowing production had already been accumulating ahead of this revision—and the market was paying attention.
Companies with dollar-denominated revenue or agricultural exposure tend to sit out this pressure cycle. The division described in the report—exporters accelerating, the domestic market braking—is the same one the market is pricing into stocks this week.
What Might Change in the Coming Months?
CNI projects two 0.25 percentage point cuts to the Selic rate at the remaining meetings of 2026, ending the year at 13.25%. This move will not reverse the manufacturing contraction in 2026, but it will determine the pace of recovery next year. As XP had already signaled when revising its terminal Selic forecast downward, the pace of rate cuts is the variable that separates the two scenarios ahead.
Credit becomes less expensive, domestic demand recovers, and manufacturing returns to positive territory. 2027 GDP could top 2%.
2027 forecasts will also be revised downward. Retail and construction remain pressured. Gross debt—already at 83.7% of GDP according to the report—continues to climb.
If you hold shares in retailers, homebuilders, or companies whose growth depends on credit and domestic consumption, CNI's revision confirms the headwinds facing the market until real interest rates drop. Exporters, agricultural companies, and dollar-revenue businesses tend to weather this cycle better. For fixed income, Treasury Prefixado (fixed-rate government bonds) grows more attractive if the market believes Selic cuts will accelerate—but loses appeal if inflation (projected at 5.15% by CNI) surprises to the upside and the central bank pauses its easing cycle.
What to Watch in the Months Ahead
Copom's November meeting—CNI projects a 0.25 percentage point cut. Holding rates steady or cutting by less than expected signals a grim outlook for 2027.
3Q26 GDP (IBGE)—the report anticipates manufacturing contraction as early as this quarter. Official data will confirm or contradict the scale of CNI's projections.
October and November IPCA—CNI projects 5.15% for the year. Exceeding this floor squeezes room for further Selic cuts and reinforces the negative outlook for industry.
Agricultural and extractive exports—these served as the cushion preventing a steeper GDP drop in this revision. A slowdown in commodities would worsen the broader picture without domestic offsetting support.
