Brazil’s economic growth performance is likely to improve. Productivity has risen since macroeconomic stabilisation in the mid-1990s, underpinned by structural reforms, including trade, investment and product-market liberalisation. But macroeconomic and structural distortions remain, preventing Brazil from reaping the full benefits of stabilisation in terms of higher growth. Additional structural reform will therefore be needed to lift the economy’s growth potential over the medium-to-longer term, so as to narrow Brazil’s income gap relative to the OECD area, which has widened. Macroeconomic disarray during the 1980s and early 1990s is the main culprit for the fall in relative living standards. Three policy challenges are identified in this Survey: to consolidate macroeconomic adjustment, to boost innovation in the business sector and to improve formal labour utilisation.