Opinion – Vinicius Torres Freire: With the drunkenness of the election package, the hangover of the economy will be worse

Consumption and employment in the second quarter were almost at the same pace as in the beginning of the year, according to indicators and measures from large banks that try to anticipate the much broader and “official” measures, those of the IBGE. You can’t say much about GDP, which depends a lot on investment and foreign trade figures. But in terms of economic temperature “on the streets”, the situation has not changed much.

In the day-to-day economy and short-term perceptions, which matter more to politics, these indicators from financial institutions suggest that there would have been no negative impact on the electoral situation of Jair Bolsonaro – quite the opposite.

For now, GDP forecasts in the red (size of economy shrinking) in the third quarter also do not seem to be in sight. They can be postponed even further, thanks to tax cuts and increases in spending, such as the increase in Auxílio Brasil and others provided for in the PEC “dos Bilhões”, “Kamikaze” or whatever you call it.

This proposed amendment to the Constitution is expected to be approved and signed into law next week. The government decided to postpone the vote as a precaution (this Thursday, there were not enough votes, enough deputies were present).

Indicators of the economy’s financial conditions, however, continue to sour. That is, the oil that makes the economy engine run smoother or faster is running low or burning out. Interest in Brazil, interest in the world, Brazil risk, dollar price, commodity prices, stock prices on the stock exchanges, everything has gotten worse.

The real quickly devalued again, interest rates on the wholesale money market rose (the “forward curve”), prices of commodities relevant to Brazil began to move sideways or to fall, interest rates in rich will still increase (in the eurozone, the show hasn’t even started yet).

Aside from miracles or abrupt reversals, there is no way to avoid an economic slowdown here in Brazil as well, sometime between this second semester and the first of next year, with some risk of a small recession in 2023.

In addition to all the rubble, from the chronic crisis, there are other problems recently ordered for 2023, such as lower revenues and higher spending, states and municipalities having to tighten their belts, thanks to ICMS cuts (and the first cut will come, of course, in investments in works and equipment).

The uncertainty about how new and old damages will be repaired or patched up should put more sand in the engine, as well as the extra demoralization of economic policy because of the embezzlement of Bolsonarism.

In short, this means that the post-election hangover will be greater. The problem will be similar both in the case of Bolsonaro’s re-election and in the case of the opposition’s victory, most likely of Lula da Silva (PT). Bolsonaro will only have the additional problem of fully confirming the embezzlement, cutting Auxílio Brasil, raising taxes and making the necessary additional squeeze, or of doubling down, fertilizing the ruin.

It should be remembered that the readjustment of civil servants’ salaries and greater pressure on spending (or inefficient spending) with the increase in the value of the package of parliamentary amendments, to stay with the basics, are still in the program of promises.

Furthermore, the public debt interest bill will increase in earnest from the final quarter of this year, with which the government deficit will be higher. If the IPCA starts to increase even less, the increase in revenues and the artificial fattening of GDP due to inflation will come to an end. Public debt will rise again at a worrying rate. That’s not going to end well.