Brazil Politics

Brazil

Brazil: Silva overtakes President Rousseff in tight election race

September 12, 2014

Recent polls show Brazilian Socialist Party candidate Marina Silva holding a slight lead over President and Workers’ Party candidate Dilma Rousseff as the 5 October election approaches. The presidential race has changed drastically over the past month since the death of first-choice Brazilian Socialist Party candidate Eduardo Campos. Subsequently, Silva has surged in the polls overtaking former frontrunner Rousseff, whose party has held the government for the past 12 years. The candidates are now neck-in-neck and analysts predict that there will be a second-round runoff.

At the forefront of the presidential debate is the future of Brazil’s economic policy. The economy, the largest in Latin America, has performed below expectations in recent years. Freshly-released Q2 GDP figures established that Brazil is in a technical recession and inflation is now resting on the upper bound of the Central Bank’s tolerance margin. Further, Moody’s Investors Service downgraded Brazil’s outlook to negative from stable citing low economic growth, a deterioration in investor sentiment, and an upward trend in government debt, which indicate a reduction in the nation’s creditworthiness.

Rousseff and Silva are divided on how to reinvigorate the deteriorating economy. On one hand, Rousseff has signaled that she won’t drastically alter economic policy if reelected. She argues that the waning economy is due to external pressures and cites Brazil’s low unemployment rate as a reason to continue with current policies. However, she has hinted at possible new government appointments and similar small changes. On the other hand, Silva has vowed to reform Brazil’s political establishment and overhaul economic policy. Silva has advocated for decreased government spending and restructuring Brazil’s Central Bank. Explicitly, she cites creating an independent Central Bank and reforming the Bank’s currency intervention scheme, which has distorted the price of the real.

The outcome of the election is still unclear. A second round vote would not take place until 26 October, leaving lots of time for voters’ opinions to change. Additionally, Rousseff will have nearly as much TV air time as all of the opposition candidates combined. Critics also question whether the relatively inexperienced Silva could effectively govern Congress, where multi-party coalitions are the norm.

With the results of the election unknown, LatinFocus Consensus Forecast panelists expect the economy to expand 0.5% in 2014, which is down 0.5 percentage points from last month’s estimate. For 2015, the panel sees GDP growth at 1.3%.


Author: Angela Bouzanis, Senior Economist

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