The political cycle inversion exacts its (steep) price

BRAZIL ECONOMICS - Report 19 Oct 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Lula faces an unfavorable scenario in his bid for re-election. The economy is slowing down, despite the enormous stimuli, and inflation remains high, while billions are spent by the government to artificially contain fuel prices. Polls show Flávio Bolsonaro in a narrow lead, which could be larger if the bias observed in the first round is repeated. Faced with this picture, the government has accelerated the announcement of a series of populist measures, some already approved by Congress, others still limited to promises. The cost is not limited to direct spending, which is already high, but also affects interest rates and, with them, households and companies that already face a fragile financial situation. Appearing to be driven more by desperation, such a strategy leaves a heavy fiscal legacy, without guaranteeing the desired outcome at the ballot box.

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