Synthesis of the Brazilian Economy

BRAZIL ECONOMICS - Report 02 Dec 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

OVERVIEW

PT TESTS ITS POWER, AND THE COUNTRY BEARS THE COST

Even after emerging significantly weakened from the municipal elections, as discussed in the November Fotografia, PT (Workers’ Party) imposed its vision on the final design of the fiscal package, increasing the risks and costs in the economic and political landscape. Will it be able to implement its populist package, or will it be restrained by reactions to the evident costs the country will have to bear?

Amid the continuous public debt growth, analysts in Brazil and abroad increasingly see the need for a government spending adjustment to ensure a credible path for stabilizing the debt-to-GDP ratio in the coming years. This is what Finance Minister Fernando Haddad had long promised, despite his failed "fiscal framework," which guarantees spending growth and only becomes a "fiscal anchor" if revenue growth occurs at a similar magnitude. Reality has proven what everyone knew: increased spending, and revenue growth could not keep pace. Debt grew, risk premiums rose, interest rates climbed, and the exchange rate depreciated, fueling inflation. The government's inadequate response has continuously heightened the country's risk.

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