Brazil's record tax haul masks second-worst fiscal deficit since 1997.

The R$91.2 billion primary deficit posted by the federal government in the first half of 2026 — the second-worst result since the historical series began in 1997, according to figures released by the National Treasury — would, at any other moment, entirely dominate Brazil's economic debate. Today, however, it must share the stage with a flood of corporate earnings, regulatory decisions, and contradictory signals that, taken together, reveal an economy under structural strain on multiple fronts simultaneously.

The fiscal paradox is the most immediate. Receita Federal announced on the same day that federal tax revenue grew 7.72% in real terms in June, closing the first half at an all-time high. Brazil is collecting more than ever and yet is accumulating a shortfall that rivals the worst moments of its fiscal history. Federal public debt reached R$9.268 trillion in June, up 2.61% on the month, with rising carrying costs. Finance Minister Dario Durigan is discussing with President Lula a proposal to tighten the fiscal framework for a potential fourth term — cutting the real spending growth ceiling from 2.5% to 1.5% per year — but Moody's has already signaled it will only reassess Brazil's credit rating in 2027, after the elections, suggesting that international debt markets will treat the country as an electoral-wait case rather than one of ongoing consolidation. The R$5.74 billion budget unlock announced by the government concentrated resources on parliamentary earmarks (R$1.2 billion), the Ministry of Cities (R$1.2 billion) and the Ministry of Transportation (R$1 billion) — a distribution that says more about election-year political logic than about adjustment priorities.

Against this backdrop, expensive credit remains the most precise gauge of pressure on households and firms. The central bank reported that the average interest rate charged to households on non-earmarked credit climbed to 64% a year in June, the highest level in nearly a decade, even as loan originations rose 6.5% on the month. Bradesco (BBDC4), whose ADRs trade on the NYSE, announced a capital increase of up to R$10 billion — with controlling shareholders committed to R$8 billion — surprising a portion of the market that had been expecting a follow-on from BradSaúde. The transaction has split analysts between those who view it as a preemptive strengthening of tangible capital and those who read it as evidence that the bank is bracing for a more severe delinquency scenario than has so far been disclosed. Delinquency in private payroll-deducted loans has already reached 8.6%, according to Valor Econômico, and the bank's shares dropped roughly 2.5% on the announcement.

Santander Brasil (SANB11) opened bank earnings season with a result that, according to Brazil Journal, can be described as a "horrendous quarter": R$3 billion in profit, down 20% quarter-on-quarter and 18% below the same period in 2025, with ROE tumbling to 12.5% — far from the 20% target set by its Spanish parent. Larger-than-expected provisions caught even analysts who had already revised their projections downward off guard. The parent's response came hours later: Santander announced its intention to launch a tender offer to acquire the roughly 10% of Santander Brasil's capital it does not yet own, in a transaction valued at up to R$11 billion — a signal that Madrid sees long-term value in the Brazilian franchise even after a weak quarter, possibly seizing on a depressed price to consolidate control.

Vale (VALE3), whose ADRs trade on the NYSE, reported R$6.84 billion in profit in the second quarter, down 43% from the same period a year earlier, penalized by the appreciation of the real — which erodes dollar-denominated revenues on conversion — and by rising costs aggravated by geopolitical tensions and the war's impact on fuels. Even so, pro forma adjusted EBITDA of US$4.1 billion beat projections from Morgan Stanley, Goldman Sachs, JPMorgan and Bradesco BBI, and the company announced a R$8.64 billion distribution to shareholders in September. Usiminas, in turn, surprised to the upside with R$428 million in second-quarter profit — up 236% year-on-year — well above analyst projections of R$279 million, even while operating under the constant pressure of Chinese steel imports.

On the corporate distress front, Raízen (RAIZ4), the joint venture between Cosan and Shell, obtained judicial approval of its out-of-court reorganization plan — the largest ever processed in the country, with liabilities of R$98.63 billion. The plan, approved by 81.6% of creditors and characterized by the presiding judge as a "historic precedent," provides for capital injections of R$3.5 billion from Shell and R$500 million from Rubens Ometto's family office, along with the conversion of 45% of restructured claims into shares at R$0.50 per unit. CSN (CSNA3), meanwhile, announced a transaction to extend the maturity of part of its international debt from 2028 to 2030, while at the same time releasing preliminary estimates pointing to widening losses and rising leverage in the first half. Agribusiness, the engine of exports, is also flashing warning signs: judicial reorganization filings in the sector rose 33% in the first quarter and could set a record in 2026, according to analysis by Neot — even with rural cooperatives accounting for 10.3% of agribusiness exports, totaling US$17.4 billion in 2025.

On the geopolitical and trade front, Brazil is maintaining two open fronts with Washington. The Lula government formally notified the WTO that the 37.5% tariff imposed by the United States is "unilateral" and "discriminatory," violating multilateral system rules, while Minister Márcio Elias Rosa confirmed that a new round of negotiations is scheduled for August, aimed at broadening the list of exceptions and reducing tariff rates. The Trump administration's renewal of the economic emergency declaration against Brazil — with no immediate practical effects — is keeping factions of the government on alert regarding the risk of additional sanctions. On the energy front, Russia extended its diesel export ban until January 2027, directly impacting Brazil's fuels market, while the CNPE approved a resolution that will allow direct sale of federal natural gas to the free market, a measure estimated to reduce input prices by up to 50% — meaningful relief for industry at a time of elevated costs, but one that arrived accompanied by questions about the Ministry of Mines and Energy's interference in the autonomy of the ANP and Petrobras in the process.

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