Macroeconomic, Political and M&A Market Outlook | 4Q25

4Q25 closed the year with the Fed cutting rates, oil at its lowest level since 2020 and the real 11% stronger. In Brazil, inflation returned to within the target and the Selic at 15% reached year-end awaiting the first cut.

Fed Funds

3.50–3.75%

Two cuts in the quarter, on Oct 29 and Dec 10

Brent

≈ US$ 61

Down about 18% in 2025, the biggest drop since 2020

Selic

15.00%

Held in November and December; Focus sees 12.25% at end-2026

IPCA 2025 · Focus

4.32%

Below the 4.50% ceiling; it was 4.81% at the end of September

Ibovespa 2025

+33.95%

Biggest annual gain since 2016, at 161,125 points

M&A through November

BRL 256 bn

1,644 transactions: +5% in number, +6% in value

The quarter in seven dates

Key events from October to December 2025 for interest rates, the exchange rate, politics and capital markets.

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2025 ended with the cost of capital at its peak and the cycle about to turn. The 2026 M&A window opens with falling rates and narrows as the election approaches.Magma’s view

Global Scenario: the Fed cuts, oil eases and gold soars

The quarter consolidated US monetary easing, with an increasingly divided committee, while oversupply knocked down oil and the search for protection gave gold its best year since 1979.

Federal Reserve: cuts with dissent

The FOMC cut rates on October 29 and again on December 10, taking the Fed Funds rate to 3.50%–3.75%, the third consecutive cut in 2025.
The December decision had three dissenting votes, which had not happened since 2019: two favored a hold and one a 0.50 pp cut.
The dot plot points to just one more cut in 2026, but with a 1.75 pp spread between the most hawkish and the most dovish member.
The Fed ended its balance sheet runoff on December 1 and resumed T-bill purchases of US$ 40 billion in the first month to preserve liquidity.
For Brazil: falling US rates and a weak dollar sustained flows into emerging markets and the interest-rate differential in favor of the real.

Geopolitics and commodities

Brent ended the year near US$ 61, its third consecutive annual decline. The International Energy Agency projects a surplus of up to 3.8 million barrels a day in 2026.
Gold rose about 65% in 2025, its biggest gain since 1979, with a record above US$ 4,500 an ounce in December. Silver more than doubled.
The US and China agreed a trade truce in late October, with tariff reductions and a temporary suspension of rare-earth restrictions.
On November 20, the US lifted the 40% surcharge on Brazilian beef, coffee and fruit, easing part of July’s tariff shock.

Corporate drivers: AI sustains growth and equity markets

Investment in artificial intelligence sustained US aggregate demand; BTG projects US GDP growth above 2% in 2025 and 2.4% in 2026.
The Fed now projects growth of 2.3% in 2026, with core inflation (PCE) falling to 2.5%.
The dollar headed for its biggest annual decline since 2017, driven by rate cuts, fiscal doubts and US trade policy.

Magma’s view

The external tailwind in 2025 favored Brazil: a weak dollar, falling US rates and appetite for emerging markets. For 2026, the change of leadership at the Fed in May is the main global unknown for the cost of capital.

Domestic Scenario: activity, politics and fiscal policy

The economy slowed and inflation eased more than expected. Politics returned to asset prices in December, and fiscal policy remains a constraint on falling long-term rates.

Focus in 4Q25: inflation falls below the ceiling; 2026 Selic stable

Focus Report median at the start and end of the quarter

Source: Central Bank of Brazil, Focus Report, editions of September 29 and December 29, 2025.

Growth and inflation

GDP grew just 0.1% in 3Q25 (+1.8% over 12 months), driven by extractive industry and agriculture; household consumption rose only 0.1%.
BTG projects a 0.1% decline in 4Q25, implying real growth close to zero in the second half. Focus sees GDP growth of 2.26% in 2025 and 1.80% in 2026.
Unemployment fell to 5.4% in October, the lowest on record, but because people left the labor force.
A stronger real and falling commodity prices pulled down goods and food inflation: November’s IPCA was 0.18%.

Political and regulatory landscape

The income tax exemption for incomes up to BRL 5,000 was signed into law (Law 15,270/2025), offset by a minimum tax on high incomes and 10% withholding on dividends from January 2026.
Provisional Measure 1,303, an alternative to the IOF increase, expired in October without a vote, a defeat for the government on its revenue agenda.
On December 5, Flávio Bolsonaro’s pre-candidacy knocked the Ibovespa down 4.3%, its biggest daily drop in almost five years, and pushed the dollar up more than 2%.
The market read the choice as a fragmentation of the right; December polls showed Lula ahead in the first round against every name tested.

Fiscal policy, Selic and exchange rate

The 2025 target should be met, with a deficit of 0.5% of GDP, thanks to labor-related and IOF revenues. For 2026, BTG sees a 0.4% deficit, at the lower bound of the target and dependent on extraordinary revenues.
Gross debt is expected to end 2025 at 78.9% of GDP and rise to 81.9% in 2026, with a nominal deficit above 8% of GDP (BTG).
New transfer and credit programs add up to about BRL 80 billion (0.6% of GDP) in 2025–2026, running counter to monetary policy.
Copom held the Selic at 15% in November and December without signaling its next step. Itaú and BTG projected the first cut as early as January 2026.
The dollar ended 2025 down 11.2%, but rose 2.9% in December, closing below BRL 5.50 in the final session. BTG estimates a typical range of BRL 4.60 to BRL 6.40 in an election year.

Magma’s view

Real rates close to 10% and an open election form the backdrop for 2026 negotiations. The new dividend tax is already affecting structures: distribution of retained earnings, closing timelines and price adjustment mechanisms are now on the negotiating table.

M&A activity: a year of expansion with selectivity

Brazil grew in both number and value of transactions in 2025, even with the Selic at 15%, while parts of the region lost momentum. Foreign investors and consolidation in technology led the way.

Capital deployed in M&A in Brazil in 2025

Source: TTR Data, monthly reports for August, October and November 2025.

Volume vs. quality

Through November, 1,644 transactions totaled BRL 256 billion (TTR Data). November alone added 110 deals and BRL 26.3 billion.
Brazil led Latin America, which totaled US$ 96 billion through November (+13%). Through September, Chile, Mexico and Colombia were recording fewer deals.
Private equity: 84 transactions and BRL 19.1 billion through October (+6% in capital). Venture capital: 296 rounds and BRL 13.2 billion (+13%).
Asset acquisitions grew 22% in volume through October, a sign of carve-outs and portfolio reorganization.

Valuation gap and risk protection

With the Selic at 15% and an election ahead, the discount rate remains high and the gap between asking and offered prices persists in the middle market.
Tools that unlock deals: earn-outs, escrows, R&W insurance and MAC clauses between signing and closing.
The 10% withholding on dividends from 2026 led sellers to bring forward distributions and to negotiate locked box mechanisms and price adjustments with extra care.

Sectors in focus

Sector	Signal of the quarter
Technology and Software	Internet, software and IT services led in number of deals for the year (TTR Data)
Chemicals and Industry	Sherwin-Williams completed the purchase of BASF’s paint business in Brazil for US$ 1.1 billion
Telecom and Digital Infrastructure	Telefônica Brasil completed the acquisition of 50% of Fibrasil for BRL 858 million
Energy and Infrastructure	Accounted for the year’s largest tickets, alongside natural resources
Agribusiness	More expensive rural credit and rising defaults are increasing the supply of assets for consolidation

Investor appetite

Foreign buyers: the US led acquisitions in Brazil, with 130 transactions through October. Foreign direct investment in the country is expected to exceed US$ 80 billion in 2025, the highest since 2014 (BTG).
Foreign PE and VC funds increased their investment in Brazilian companies by 17% through October.
Strategic buyers: retain an edge in an expensive-credit environment, because they fund deals from their balance sheets and capture synergies.

Magma’s view

Those who prepared their company in 2025 enter 2026 with the best window: rates starting to fall and well-capitalized buyers. Ideally, deals should be signed before the campaign peaks, in the 2nd quarter of 2026.

Comparative matrix of consensus projections

The banks converge on GDP growth near 1.7% and inflation within the target in 2026. The divergence lies in the size of the cutting cycle: from 2.25 pp to 4.25 pp over the year.

Economic indicator (2026)	Itaú Unibanco	Bradesco / BTG	XP / J.P. Morgan	Focus (Dec 29)
GDP growth	1.7%	— / 1.7%	1.7% / —	1.80%
Inflation (IPCA)	4.0%	3.8% / 4.1%	4.0% / 3.6%¹	4.05%
Selic rate (end-2026)	12.75%	12.00% / 12.00%	12.50% / 10.75%¹	12.25%
Exchange rate (USD/BRL, end-2026)	BRL 5.50	— / BRL 5.20	BRL 5.50 / —	BRL 5.50
Net debt (% of GDP, end-2026)	—	— / 70.1%	—	—
Gross debt (% of GDP, end-2026)	—	— / 81.9%	—	—

J.P. Morgan projections released between October and November, when the bank expected the first cut in December; Copom held the Selic. The bank does not publish a full forecast table.
Itaú: November scenario, with 2026 IPCA revised to 4.0% in December. Bradesco: November review. XP: scenario in effect at year-end; exchange rate and GDP from the October review. BTG: Macro View of December 16.
“—” indicates data not published in the period consulted. Among the firms analyzed, only BTG publishes a public net debt projection.

How much the Selic falls in 2026, according to each firm

Projections for the Selic at end-2026 in effect in 4Q25. ¹ Projection from October–November 2025, before the Selic was held in December.

Where the views diverge

Selic: J.P. Morgan is the most optimistic, with a long cycle down to 10.75%. Itaú is the most conservative, at 12.75%; BTG and Bradesco are in the middle, at 12%.
Start of the cycle: Itaú and BTG saw a cut in January; part of the market was already pricing March or later, given the lack of signaling from Copom.
Exchange rate: BTG sees BRL 5.20, while Itaú, XP and Focus converge on BRL 5.50, building in an election premium.

Allocation recommendations by asset class

The consolidated view of research teams for the turn of the year is to position for the cutting cycle, with protection against electoral and fiscal volatility.

Asset class	Position	Rationale
Inflation-linked (NTN-B)	Overweight	Real rates above 7% on long-dated bonds: protection against fiscal risk and gains as the Selic falls
Intermediate fixed-rate bonds	Overweight	Main beneficiary of the cutting cycle expected for 2026
Floating-rate (CDI)	Neutral	A 15% CDI still rewards liquidity, but carry is likely to fall over the year
Domestic cyclical stocks	Selective	Consumer, retail and construction benefit from lower rates; electoral volatility calls for selectivity
Defensive stocks	Hold	Utilities, sanitation and telecom with predictable cash flow; the dividend tax from 2026 reduces part of the appeal
International (Tech/AI)	Hold	Diversification and currency protection for the election year, with AI earnings still strong
Brick-and-mortar REITs	Reassess	Deep discounts and the expected fall in rates open room for recovery
Credit REITs (high grade)	Hold	Receivables linked to the CDI and IPCA still offer attractive carry
Commodities	Caution	Oil under pressure from oversupply; gold as protection, after a rise of about 65% in the year

Trigger to watch

The first Selic cut and the pace of the cycle. Every 1 pp off the discount rate directly improves the valuation of long-term assets.

Main risk

An election premium and fiscal stimulus in the election year pressuring the exchange rate and long-term rates, which would limit room for cuts.

After the close · outside the 4Q25 window

January 2026 confirmed inflation within the target and M&A on the rise

2025 IPCA closed at 4.26%, within the target tolerance range.
At its January meeting, Copom held the Selic at 15% and indicated that it could begin cutting in March.
TTR Data’s annual report showed BRL 313.5 billion in M&A in Brazil in 2025 (+15.8%), with the US as the main foreign buyer (162 transactions).

For M&A: the 2025 comparison base is high. In 2026, deal count is likely to fall ahead of the election, with value sustained by larger transactions.

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Sources

Economic, political and corporate-transaction research reports and publications released between October and December 2025, with post-close data identified in the text.

Itaú UnibancoItaú Macro Research, November and December Brazil Macro Scenario
BradescoEconomic Research Department, November review
BTG PactualMacro View, December Monthly Macro Report
XP InvestimentosXP Macro, 4Q25 scenario reviews
J.P. MorganBrazil Economic Research and Latin America Equity Strategy
Central Bank of BrazilFocus Report and Copom decisions of November and December
Federal ReserveFOMC statements of October 29 and December 10, 2025
International Energy AgencyOil Market Report
FGV IBRESurveys and Confidence Indices
TTR DataMonthly M&A reports for Brazil and Latin America and 2025 Annual Report
Aon, TTR Data and DatasiteLatin America M&A Report
IBGEQuarterly National Accounts and IPCA
B3Ibovespa performance in 2025

Informational content prepared by Magma Transações Societárias based on public reports from financial institutions. Projections belong to the respective institutions and may be revised at any time. This material does not constitute an individual investment recommendation.