Brazil Politics September 2018

Brazil

Brazil: Wide open electoral race clouds economic outlook

September 7, 2018

Despite being less than a month away, Brazil’s 7 October elections remain highly uncertain, with several candidates possible contenders for the presidency. Corruption scandals combined with an entrenched economic crisis have decimated most of the country’s traditional political elite, opening the field for relatively unknown contenders as voter disenchantment has soared. As a result, the outcome is likely to be highly fractured, with a second-round presidential runoff extremely likely. Political volatility is taking a toll on the country’s economy and will likely continue to do so until there is clarity on policy going forward. In September, the real plummeted to levels not seen since 2015 at the height of the economic crisis, while economic sentiment has also fallen in recent months, boding poorly for investment.

The country is badly in need of a reform-minded president to correct depleted government accounts and improve the economy’s fundamentals; however, so far centrist and reform-minded candidates have been struggling in the polls. The clear frontrunner thus far has been former President Luiz Inácio Lula da Silva (Lula), whose economic platform has not been viewed positively by the market. Lula has campaigned on scaling back some government reforms and boosting public spending, which could worsen Brazil’s already fragile accounts. However, on 31 August, he was officially barred from running due to corruption charges. His running mate, Fernando Haddad, the former mayor of Sao Paulo, will likely take his place as the Workers’ party’s pick for president. However, it is uncertain if Lula’s support will transfer over to Haddad. While polls have showed Lula consistently gaining over 30% of voter support, the latest poll since the ban showed just 6% in favor of Haddad.

Far-right congressmen, Jair Bolsonaro—who has garnered support due to his status as a political outsider—is second place in the polls. Although Bolsonaro is campaigning on a platform of privatizations, tax cuts and changing the pension system, his outsider status and small political party make it unlikely that he would have the political muscle to navigate Brazil’s fractured Congress, which could stall policy making. Bolsonaro is a controversial figure who has made many extreme and aggressive speeches. Moreover, he was attacked at a rally on 6 September, and it is uncertain how it will affect his campaign. After Bolsonaro, several candidates are clustered together, with polls showing that around 5–15% of voters would support them. Social Democracy party candidate Geraldo Alckmin, who is seen as the most market friendly candidate, has been polling in fifth position. However, he will receive the largest TV airtime during the campaign which could give him a boost prior to the vote.

The incoming president will inherit a tentatively growing economy, with several challenges to address. While the economy has finally returned to growth after the worst recession in modern history, the recovery is fragile. More progress needs to be made on correcting government finances, while reform to the country’s bloated pension system is long overdue. However, an austerity-weary public has dampened political willpower for reform, and the future president will also have to be skilled at consensus-building to push legislation through the likely fractured Congress.

Brazil GDP Forecast


Our analysts see the economy growing 1.7% in 2018, which is unchanged from last month’s forecast. In 2019, the recovery is seen gaining speed and GDP should increase 2.4%.


Author: Angela Bouzanis, Lead Economist

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