Brazil’s economy is stable, but consumers are feeling down

Consumer optimism in Brazil dropped by five percentage points in the first quarter of 2025 compared to the last quarter of 2024. Notably, this dip occurred despite strong market confidence and robust spending during the holiday season. Inflation remains a worry for many; the number of consumers that cite rising prices as a source of concern is up by eight percentage points from the last quarter—but this is less the case for high-income individuals.

Optimism has declined most sharply among younger generations, while Boomers and Gen X have experienced a rise in positive sentiment. Despite this increased optimism among older generations, more Boomers and Gen X are reporting reductions in their household spending. In contrast, younger generations are showing the opposite trend, with a greater share increasing their spending.

Following a robust shopping season, consumers are reverting to spending on essentials and semi-discretionary goods instead of discretionary items. Categories such as apparel, entertainment (both at home and away), and footwear experienced declines—an expected trend following the end-of-year holiday sales.

One notable exception is cruise bookings, which surged by 29 percentage points. This is surprising given this category’s 30 percentage-point drop from Q4 2023 to Q1 2024, indicating a non-seasonal fluctuation.

Additionally, there are significant changes in dining and travel habits. Consumers plan to dine out less but intend to spend more on meat, dairy, and fresh produce. International flight bookings rose by 14 percentage points, while domestic flights, hotels, and short-term housing rentals saw a decline.

Trade-down behavior remains prevalent, with 89 percent of consumers reporting they traded down in the past quarter. Interestingly, despite growing optimism, Boomers have intensified their trade-down habits, while Gen Z reduced their trade-down practices despite a dip in optimism.

Furthermore, the nature of trade-down behavior is evolving. Fewer consumers are switching to lower-priced or private-label brands or changing retailers for lower prices or discounts. Instead, more consumers are adjusting pack sizes and quantities to manage their budgets. This contrasts with trends in the United States and the European Union, where consumers are increasingly opting for private brands.

Following the end-of-year shopping season, splurge spending returned to the regular levels seen throughout most of 2024. Even so, changes are emerging across age groups and income brackets, highlighting the complexity of consumer spending habits.

Gen Z and Boomers have significantly cut back on splurge spending, likely due to overspending in the prior quarter. In contrast, Millennials and Gen X continue to exhibit slightly elevated splurge levels, mirroring their holiday-season behavior.

Examining income levels reveals further complexity. Low-income consumers are maintaining their usual spending patterns outside of holiday periods. Meanwhile, fewer high-income consumers plan to splurge compared to last quarter, although their splurge levels remain significantly higher than in the first half of 2024.

Overall, splurge spending has decreased by six percentage points from the last quarter, aligning with 2024 levels and indicating a typical post-holiday decline.

Apparel and footwear remain the top splurge categories, but younger generations are pulling back on these items, as well as on beauty and personal-care products.

Spending on out-of-home entertainment and dining out shows mixed trends. Younger generations are increasing their spending in these areas, reflecting a shift in their social activities. Travel spending is also rebounding among Millennials after a decline in the previous quarter, as their focus shifts away from other discretionary categories that typically consume more of their budget during the holiday shopping season.

Optimism in Brazil rebounded, with 38 percent of consumers in our research expressing confidence in the country’s economic conditions, compared with 33 percent in the second quarter. Notably, the share of consumers with mixed feelings about the economy has fluctuated as the percentage of those pessimistic about the economy has remained stable throughout 2024, hovering between 18 and 20 percent. While high-income consumers drove this optimism—44 percent feel positive about the economy—that figure was down from 52 percent late last year, reflecting the generally lower rate of optimism relative to most of 2023. The findings also show significant generational differences, with Gen Z notably less optimistic than older peers, which is unsurprising given the high youth unemployment rate.¹Baby boomers were born between 1946 and 1964; Generation X between 1965 and 1980; millennials in the 1980s and 1990s; and Gen Z between 1997 and 2012. “Brazil: Unemployment rate from 1999 to 2023,” Statista, July 5, 2024. Inflation remains a primary concern, with 50 percent of respondents citing rising prices as a top issue, compared with 43 percent in the June quarter. Younger generations are markedly less optimistic, given their lack of experience with the hyperinflation of the 1980s and 1990s, making current inflationary pressures more impactful.

The rebound in economic optimism is translating into increased intent to spend. Brazil’s consumers are planning to spend more on a range of essential, semidiscretionary, and discretionary items relative to the previous quarter, with some notable categories experiencing significant shifts, including jewelry, meals at sit-down restaurants, furniture, and toys. Intent to spend varies among age groups. Gen Z consumers plan to spend more on fitness and furniture; millennials on cruises, home improvement, and toys; and baby boomers on wellness products. Despite relatively stable spending intentions this year, overall consumption is exceeding market expectations and fueling GDP growth.

The number of consumers switching to cheaper products in the past three months has increased by seven percentage points year over year to 31 percent, continuing a consistent trend toward trading down. More medium- and high-income respondents reported delaying purchases compared with the second quarter, while fewer low-income consumers did so. This is likely because low-income consumers can’t deprioritize essential items, which consume most of their disposable income, while medium- and high-income consumers can afford to postpone purchasing nonessential splurge items. Baby boomers are adjusting their behavior more than any other age group, with 94 percent trading down compared with 84 percent in the three months ending in June. The percentage of baby boomers changing brands or delaying purchases has increased by double digits. Conversely, far fewer Generation X consumers are delaying purchases, adjusting quantities or pack sizes, or changing retailers. Notably, approximately one-third of respondents reported using “buy now, pay later” services—roughly double the rate observed in the United States, Mexico, and the five biggest European economies. Buy now, pay later is a popular payment method in Brazil, where the digitalization of payments has facilitated its growth.

Despite general optimism about the state of Brazil’s economy, the number of baby boomers planning to splurge in the next three months dropped significantly, from 38 percent to 29 percent. By contrast, a generation both pessimistic about the economy and more likely to belong to a lower income group—Generation Z—indicated an intention to splurge. Overall, 54 percent of Gen Z consumers planned to treat themselves this year, up from 49 percent in the second quarter.

While rebounding consumer optimism is not translating into general plans to splurge—as evidenced by a decline in the number of consumers intending to spend on top categories such as apparel, footwear, groceries, beauty and personal care, and out-of-home entertainment—there are generational differences. Millennials show an increased inclination to splurge in nearly all categories except beauty and personal care products, while Generation X appears to be shifting its splurge purchases from footwear and beauty products to restaurants and entertainment away from home. Last, more high-income respondents plan to splurge compared with the previous quarter, while medium- and low-income consumers cut back on discretionary spending. An exception is dining out, where more plan to splurge during the next three months.