Synthesis of the Brazilian Economy

BRAZIL ECONOMICS - Report 04 Nov 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

OVERVIEW

THE CONFIDENCE CRISIS STILL WAITS FOR AN ADEQUATE RESPONSE

The decline of the Workers' Party (PT) in the municipal elections at the end of October added a significant element to the political landscape. The major winners were the Social Democratic Party (PSD), known as the “Kassab’s party, (after its founder)” which won in 887 municipalities, and the Brazilian Democratic Movement (MDB), which won in 854, including São Paulo, where Ricardo Nunes easily defeated Guilherme Boulos, supported by Lula. Both parties also elected the majority of state capital mayors, with five capitals each. Other Centrão parties, such as the Progressive Party (PP) with 747 wins and União Brasil with 583, also performed well. Meanwhile, Bolsonaro's Liberal Party (PL) will run 516 municipalities, and the PT only 252.

The weakening of PT and the strengthening of Centrão indicate that the cost of governing has increased, and the consequences are starting to unfold. If Centrão secures a greater share of power, it signals potential support for Lula in 2026, likely in exchange for more ministries and greater control over funds and decisions. In addition to its disappointing election results, PT is embroiled in an intense internal struggle for party leadership, set to be replaced in the coming months (Lula wants to expedite the change, while Gleisi Hoffmann wants to oversee it herself).

This situation affects Haddad, limiting his scope as minister. A loyal member of PT and close to the president, he is considered a possible presidential candidate in 2026, should Lula step down or be unable to run due to age or health issues. In this position, Haddad finds himself between a rock and a hard place: he must moderate his fiscal adjustment proposals to avoid alienating PT while also appearing to pursue responsible fiscal policy to address the growing confidence crisis. This is a Herculean task, which cannot be solved by mere words and promises given the deteriorating internal and external conditions.

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