The Week Ahead in Brazil #115

1. Politics – Luiz Inácio Lula da Silva (PT) managed to form the largest party alliance in the presidential race. Besides the PT, the bloc includes PSB, Solidariedade, PSOL, Rede, Avante, PCdoB, and PV, totalling eight parties. The PROS can still join the partnership. President Jair Bolsonaro (PL) has formed a bloc with PP and Republicanos. (Estadão)

PSDB and Citizenship announced Senator Mara Gabrilli (PSDB-SP) as the vice-presidential candidate with Senator Simone Tebet (MDB-MS). (Estadão)        

União Brasil announced Senator Soraya Thronicke (União-MS) as the party’s candidate for the Presidency of the Republic in the party’s national convention. (Estadão)

The president of the Senate and the National Congress, Rodrigo Pacheco, resumed the legislative work in the second semester with a statement in defence of democracy, in which he expressed his confidence in the electronic ballot boxes and the Electoral Justice (Senate)

The Quaest poll shows Luiz Inácio Lula da Silva (PT) leading the voting intentions in the first round with 44% (-1pp), Jair Bolsonaro (PL) with 32% (+1pp). The government is disapproved by 43% (-4pp) and approved by 27% (+1pp). The poll was conducted face-to-face with 2,000 voters from July 28-31.

The PoderData survey also shows stability in the presidential election. Lula has 43% (stable) and Bolsonaro 35% (-2pp). Currently, the government’s disapproval rate is 57% (+2pp) and the approval rate is 39% (-2pp). The poll was conducted by telephone with 3,500 voters from July 31 to August.

Here is the poll selection:

2. Economy – The Monetary Policy Committee (Copom) increased, on Wednesday (3), the Brazilian basic interest rate (Selic) by 0.5 percentage points. The Selic is now at 13.75% per year, the highest level since November 2016. (Valor)

Petrobras announced a 3.6% cut in the price of diesel oil at refineries. The average value of the fuel for distributors will fall from R$ 5.61 to R$ 5.41 per litre. (Folha)        

Brazilian exports totalled, last month, US$ 29.955 billion, and imports, US$ 24.511 billion. This generated a positive balance of US$ 5.444 billion. The note from the Ministry of Economy can be read here. (Brazil)

Bradesco recorded a net profit of R$ 7.04 billion in the second quarter, up 11.4% in one year. (Valor)

3. Public administration – The Armed Forces and the PTB started the inspection of the electronic ballot box source code at the headquarters of the TSE (Superior Electoral Court). Other institutions have already carried out the inspections. (Poder360)

President Jair Bolsonaro (PL) sanctioned a provisional measure (MP) that allows granting payroll loans to beneficiaries of two social programmes. Moreover, he increased from 40% to 45% the margin for consigned loans to pensioners and retirees. (Valor)

The President has also sanctioned the national floor for nurses, set at R$ 4,750.00 (Estadão)

1. The political trend remains aligned among the main actors of the political process, creating a favourable environment for the creation of public policies. The resumption of work in the Legislative Branch occurred without surprises or controversial votes. In the lower house, deputies approved several critical provisional measures. Even the project that restricts temporary prisoner exits, known as “saidinhas”, was also approved and sent to the Senate for appreciation.

Considering the end of the period for party conventions, the alliances signed between the parties are relevant to analysing the political scenario. The first impact of these agreements is materialized in more time for propaganda and electoral funds. In this aspect, Lula is ahead. The second impact is the political environment in the legislative branch and the across the territory. With a broad alliance, which elected 130 federal deputies, 12 senators and eight governors in 2018, the PT and seven other parties are also stronger in this regard, with substantial state and municipal presence. In addition, there is dissent in the MDB and other parties that will support Lula’s campaign. Bolsonaro’s alliance, in turn, with PL, PP and Republicanos, has 101 federal deputies, seven senators and one governor, with far less reach.

In relation to the electoral polls, there were no significant variations in the difference in points between the two main candidates. There are, however, mixed signals regarding government approval ratings, with a positive swing towards Bolsonaro in Quaest’s face-to-face survey. This type of survey tends to capture more the preference of voters with a lower income profile. This may be an initial effect of the fall in fuel prices and the unemployment rate. So far, therefore, Bolsonaro may continue to improve his performance, especially until the end of August, the month in which aid begins to be paid. This trend may be reinforced with the authorisation of consigned loans for the social programme beneficiaries. Although it has aroused strong socioeconomic concerns, there is consensus that political gains will come in the short term.

Last, but not least, a final relevant aspect for next week is the issue surrounding the electronic ballot boxes and the manifestos in favour of democracy. The content has already been made known and adherence to them is robust. The political ramifications of these events will depend more on Bolsonaro’s reaction than on the actions themselves. If he heeds the advice of close allies – both palace officials and the leaders of the PL, PP and Republicanos – Bolsonaro may react moderately and, thus, reap electoral dividends from the good moment in the economy. If the temperature rises, however, the agglutination of forces around the PT candidacy may be reinforced. In any case, the electoral polarisation is growing and, for now, the forecast is of a close first round between Lula and Bolsonaro.

2. The economy continues with a favourable trend. Monetary policy continues to closely monitor inflationary effects and has acted to raise the Selic by 0.50pp. For its next meeting in September, Copom has signalled it will evaluate the need for a new increase and, if necessary, it will be a more modest 0.25 pp. The minutes of the meeting will be released on Tuesday (9). The drop in international oil prices and the reduction in diesel prices announced by Petrobras should contribute to lowering August inflation.

The trade balance result was not as positive as expected. The surplus was lower than in July 2021, and the accumulated surplus over 12 months dropped from US$ 58.5 billion to US$ 56.6 billion. The result for 2022, however, should remain positive and robust.

Next week, the highlight will be the result of the July inflation measured by IPCA. Market agents estimate a deflation of around 0.6%.

3. Public management continues in a neutral trend. Institutions seem to be functioning within regular standards. The interaction of the TSE with the Armed Forces is a point to be observed.

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