The Week Ahead in Brazil #127

What is happening in Brazil?

1. Politics – Former congressman Roberto Jefferson (PTB) was indicted on Monday (24) on suspicion of four attempted murders after he reacted to an arrest order and attacked federal police officers with gunfire and grenades on Sunday (23). Jefferson was arrested after resisting for eight hours a decision by Justice Alexandre de Moraes of the Federal Supreme Court (STF). The reason for the order was non-compliance with the rules of house arrest, a fault Jefferson allegedly committed when he published a video calling STF Justice Carmen Lucia a “prostitute”. (Folha)

On Saturday (29), federal deputy Carla Zambelli (PL-SP) had an argument with PT’s supporters. Ms Zambelli and her bodyguards pursued a man with their guns in hand. (Folha)

On Monday (24), Communications Minister Fábio Faria and the campaign’s communications chief alleged that radio stations had failed to broadcast 154,000 radio insertions of Bolsonaro’s campaign. The fraud allegation was filed in a lawsuit with the TSE (Superior Electoral Court). The president of the TSE, Alexandre de Moraes, said that the accusation is severe but that there is no substantial evidence in the thesis presented by the campaign of President Jair Bolsonaro (PL). Bolsonaro said he would appeal. (Folha)

Last week’s election polls indicated an average gap of 4.6 percentage points between Lula and Bolsonaro. The most recent polls point to 3pp, down 1.6pp from the previous week.

            Source: own preparation based on original polls. Based on valid votes.

2. Economy – The Central Bank’s Monetary Policy Committee (Copom) has decided to maintain the annual basic interest rate at 13.75%, as signalled in the last meeting in September. (Valor)

After two consecutive months of declines, the IPCA-15, an inflation index, rose 0.16% in October. The accumulated for the last 12 months is 6.85%, according to the IBGE (Brazilian Institute of Geography and Statistics). (Folha)

The unemployment rate fell again in Brazil in September. It was the seventh consecutive drop. According to IBGE, the unemployment level in the quarter that ended in September was 8.7%. In the quarter that ended in August, it was 8.9%. Real income grew by 3.7%. (Estadão)

The Ministry of Labour and Social Security informed that Brazil generated a positive balance of 278,085 formal jobs in September. The result was below the 285,314 jobs opened in August and the 330,177 jobs created in September 2021. The accumulated balance of formal jobs created reached 2,147,600 in the year (Valor)

The Industry Confidence Index (ICI) fell 3.8 points in comparison with the previous month, according to FGV data, reaching 95.7 points, the second consecutive decline and worst result since March 2022. (Folha)

The Brazilian trade balance surplus reached US$ 3.10 billion in October, up to the third week, with an increase of 114.7% in relation to October last year, according to the daily average. From January through the third week of October, the surplus reached US$ 50.82 billion, down 11% over the January-October 2021 period, according to the daily average. (Brasil)

Tax revenues reached R$ 166.3 billion in September. The number is the best for the month in the historical series, which began in 1995. (Poder360)

Brazil’s public debt fell for the third consecutive month. In September, the debt fell 0.5% to R$ 5.75 trillion. (g1)

3. Public Administration – The federal government has regulated Law 14.273/2021, known as the “Law of the Railroads”. Decree 11.245/2022 organizes railway transportation to induce new private investments. The expectation is that the rail network will be expanded. (Brazil)

An analysis:

1. On the eve of the election on Sunday (30), the trend for politics is neutral. One reason is that the outcome of the election remains uncertain. Bolsonaro had been improving his conditions in the dispute until last Sunday: he got celebrities’ support and two hours to speak freely in the electoral debates. All this translated into a reduction in the distance between him and Lula.

On Sunday, however, the episode involving Roberto Jefferson hit the campaign. The campaign mismanaged the crisis with confusing statements and actions. On Monday (24), the media reverberated the episode as a consequence of Bolsonaro’s attacks on the STF. To make it worse, there was the issue of radio insertions and the news that the Ministry of Economy prepared studies on the end of deductions in the Income Tax and that it would not increase the minimum wage. On top of that, there was the Zabelli episode. It was a week that did not turn out as expected for Bolsonaro, with polls showing a setback in his performance.

If Bolsonaro wins the election, the environment for the approval of public policies will remain favourable until the end of the year. With the new legislature, there will be a brief period of accommodation with the negotiations of the formal leadership in Congress, but the favourable condition tends to remain.

If Lula wins the elections, National Congress may enter a waiting period this year, worsening the chances of approval of critical projects for the government. In practice, this means less commitment and fewer conditions for the Executive’s agendas, although express consent for specific proposals is possible. From 2023 on, with the predominance of centre-right members of parliament, Lula will have to engage in significant negotiations to ensure governability. This will occur through opening space in the government, including appointing ministers from the House and Senate or party leadership. After the consolidation of this phase, materializing, thus, a broad party coalition, conditions should return to favourable circumstances for the approval of essential projects for the government.

2. The economy continues on a positive trend. Despite the political turbulence and its impact on the stock market, economic figures continue to evolve satisfactorily. Even with the IPCA-15 index slightly above expectations, the accumulated figure for 12 months continues to decelerate in relation to September, dropping from 8.0% to 6.9%. Monetary policy remains in line with market expectations.

The unemployment rate should continue declining through the end of the year.

3. The public administration continues in a neutral trend, with no significant changes.

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