The economy will be the main protagonist of the municipal elections next October; the economy with few zeros, the economy of ordinary citizens who shop at the supermarket every day and struggle to make ends meet, because the economy is precisely the great unknown of Brazil in the coming months, divided between euphoria due to recently published positive data and fear due to negative forecasts. After a second semi-annual decline, the Gross Domestic Product (GDP) of the Latin American giant grew again, with an increase of 0.8% between January and March of this year. Forecasts had ranged between 0.5% and 1%. According to data from the Brazilian Institute of Geography and Statistics (IBGE), the positive figure was driven by services, agribusiness and household consumption, which increased by 1.5% compared to the fourth quarter and by 4.4% compared to the same quarter of the previous year. The labor market undoubtedly contributed to this good result, with a decrease in unemployment, and also fiscal stimuli, such as the increase in the minimum wage and the payment of the so-called “precatoria”. A precatory is a request for payment of a certain amount made to a public entity (Union, state, municipality, its organizations or foundations), by virtue of a final and condemnatory judicial decision, which allows the winner to receive the credit. The judicial debts of public entities become precatory, and may consist of salary reviews, pension concessions and tax refunds. In Brazil, investments have also increased, a result that is mainly due to the recovery of truck production compared to the first half of 2023, when there was a drop of 37.5% compared to 2022, in compliance with some environmental criteria, according to data from the National Association of Automobile Vehicle Manufacturers (ANFAVEA).
The most surprising aspect of the first quarter of the year was the significant growth of domestic demand and the lower contribution of external demand. Unlike last year, imports are expected to grow faster than exports and domestic demand is the main driver of growth in 2024. The market forecasts growth of 2.2% by the end of the year, while The government estimates that it will reach 2.5%. However, to reach the GDP per capita levels of Greece, which is the poorest country of the 41 developed countries on the International Monetary Fund (IMF) list, Brazil would have to grow at a rate of 2.3% for 30 years, according to estimates by C6 Bank economists. But current factors will make such long-term goals very difficult. First of all, in the second quarter Analysts predict the negative impact of the catastrophe in the state of Rio Grande do Sul, which alone produced 5.9% of the GDP, that is, 640,230 million reais (121,749 million dollars), in 2023. The consequences of the calamity in southern Brazil could, according to forecasts, make the GDP will approach zero in the second quarter. Added to this factor is the unknown of inflation. The increase in consumption and the general decrease in unemployment put pressure on inflation, over which hangs another sword of Damocles, the Central Bank’s Selic rate. In April, pressured by food prices and personal and medical expenses, the inflation rate was 0.38%, higher than the previous month (0.16%) but lower than April of last year ( 0.61%). In Monday’s Focus Bulletin, the Central Bank’s weekly analysis of the main economic indicators, annual inflation expectations increased for the fourth consecutive week to 3.86%. In April, inflation for the last 12 months was 3.69%.
As for the Selic rate, which the Central Bank has been gradually reducing since August of last year, it currently stands at 10.5%, after having been cut by 0.25 percentage points in May. However, The Central Bank has warned that the end of the cut cycle is approaching, not only due to the uncertainty about the reduction of the interest rate in the US, but also due to fears about the fiscal policy of Lula’s government, which runs the risk of not balancing public accounts and maintaining the fiscal goal. In May, the public accounts deficit was 11.1 billion reais (2.111 million dollars), according to data from the National Treasury Secretariat. This is the worst April result in four years. In total, since January, the deficit reached 30.6 billion reais, that is, 5.819 million dollars. Regarding the so-called nominal deficit, which takes into account primary expenditures and debt interest payments, at the beginning of June the Central Bank revealed that, in the 12 months ended in April, it reached 9.41% of the Domestic Product Rough. This is the worst value since April 2021, when the country suffered the impact of the pandemic. Regarding public debt, it reached 76% of GDP.
In an editorial, the newspaper Folha de São Paulo writes that “with the irresponsible spending zeal of the Lula government, all efforts to clean up the accounts after the calamity caused by his co-religionist Dilma Rousseff return to the starting point. In fact, the federal primary deficit today is comparable to that of 2016.” So much so that there are already many who call the current Minister of Economy, Fernando Haddad, a ‘victim of Lula’s Dilma 3 government’, in reference to the terrible economic recession caused by the economic decisions of Lula’s dolphin, who current president is partly replicating. A newspaper editorial The State of São Paulo states that “the Minister of Finance, Fernando Haddad, seems optimistic when he says that the GDP ‘came in strongly’ – which is true – and that he expects more positive results after the boost in investments, despite the lack of elements that guarantee sustainable growth. It is the task of President Lula da Silva to say that Brazil is on the ‘right path’, but at the current pace, without adequate stimuli and without respecting the economic fundamentals, the Lulo-Petista solution will take us nowhere.” Yesterday, the dollar closed at 5.32 reais, the highest value since January 5, 2023.
But the great challenge will be at the end of December, when the mandate of the president of the Central Bank expires, Roberto Campos Netowho has already announced that he will leave the institution and, according to the agency Bloomberg, is interested in moving to Miami and opening his own fintech. Who will take Campos Neto’s place and, above all, what type of monetary policy will be followed is still unknown. The only certainty is that he will be indicated by Lula. Furthermore, the market fears interference from the president, who at the beginning of his term had announced in an interview with cnn that the government wanted to “re-evaluate the autonomy of the Central Bank.” Since then, Lula’s personal attacks on Campos Neto have been numerous, especially in relation to the fall of the Selic rate. The last one was at the end of May, during his visit to the state of Rio Grande do Sul. “I hope that the president of the Central Bank will cooperate with us by reducing the Selic rate so that we can lend at the cheapest interest rate,” Lula said. . One of his most faithful defenders during the electoral campaign, Arminio Fragaformer president of the Central Bank, sounded the alarm a few days later in an interview with Folha de São Paulo. “It is sad to see how things are being conducted, the explicit political pressure, the attacks on the Central Bank, the idea that fiscal responsibility is a great evil. If whoever assumes power bows to politics, inflation starts to rise and the market loses confidence, it will be a big political fiasco, too, and fast,” said Fraga.
Meanwhile, Prices continue to rise on supermarket shelves, citizens complain and the debt, despite the increase in consumption, grows. In April, according to data from the National Confederation of Trade in Goods, Services and Tourism, 79% of Brazilian families have debt. It is precisely the economy that could be an important variable in the elections that the country will face, the municipal elections in October and then the presidential elections in 2026. Regarding the latter, it was even a wing of the Workers’ Party, Lula’s PT, the who raised the alarm after a recent Genial/Quaest survey revealed that 55% of those interviewed believe that Lula does not deserve another chance in 2026. Specifically, a wing of the PT believes that the economy is the Achilles heel that could ruin not only the presidential elections, but also the municipal elections. Former president of the Workers’ Party and former minister Ricardo Berzoini He stated that “there are no great expectations in the PT in relation to the municipal elections. We’re realistic: we want to rebuild and expand our presence, but that doesn’t mean it’s going to be a blast. We will have a growth scenario, but moderate.” In 2020, the PT, overwhelmed by the corruption scandals uncovered by the Lava Jato operation, had lost in all 26 Brazilian capitals. Today he still does not lead any electoral poll for the October elections.
