Improvement in the economy trumpeted by Bolsonaro will have low electoral impact, say experts

The economic improvements trumpeted by the Jair Bolsonaro (PL) government will have little effective impact on the final stretch of the presidential race, assess economists and political scientists.

Bolsonaro and his allies have been using social media in recent weeks to spread economic indicators that, in their opinion, would attest to the country’s recovery after the losses resulting from the Covid-19 pandemic.

They usually cite data that show GDP growth, increase in job creation, drop in fuel prices and works in progress or completed.

The dissemination of positive news seeks to boost the president’s campaign, which ended the first round in second place, behind Luiz Inácio Lula da Silva (PT).

Faced with a scenario that it considers to be driven by electoral measures, Lula’s team rules out changes in campaign strategy.

The “thriving economy” described by Bolsonaro results, in large part, from measures approved a few months before the elections. In June, the president announced a package of up to R$50 billion to try to curb inflation and contain the impact on consumers’ pockets, releasing boosted social benefits to the population and cutting taxes.

Driven by the drop in fuel prices, the IPCA, the official inflation index, dropped two consecutive months. In August, it returned to single digits in the 12-month period, reaching 8.73%.

On Tuesday (11), the IBGE will inform the IPCA for September. The expectation is for a further retreat. The Central Bank forecast for the month is for a fall of 0.21%.

For the first time this year, relief in food prices is expected, as shown by the previous inflation index, reflecting better weather conditions for the production of part of the food in recent months, in addition to the drop in commodities on the international market.

This after food inflation, which weighs mainly on the pockets of the poorest families, has advanced 13.43% in the 12 months through August.

With the shocks resulting from the Ukrainian War attenuated, the BC estimates a significant decline in accumulated inflation, reaching 5.72% in November.

Even if prices fall until the end of the year, economist Heron do Carmo, a professor at FEA-USP (Faculty of Economics and Administration at the University of São Paulo), points out that Brazilians will not forget the balance of previous increases.

“One can even perceive this stabilization of prices, even the slight drop of some products now. But, when compared to six months ago, the picture is still very unfavorable”, he said.

In the specialist’s view, economic indicators, such as the IPCA, are “fiction” for a large part of the population. “As people’s reference is based on a longer period of observation, the improvement of the economy has an effect on the candidate in the situation, but you cannot say that this is decisive to the point of changing the outcome of the election,” he said.

The assessment is shared by political scientist Carlos Melo, from Insper. “Was there deflation? There was. But was there deflation of food, of health? There wasn’t, on the contrary,” he said.

“As long as this improvement doesn’t reach the supermarket cart, the big voters in this country, which are women, who are the people who go to the market, who take care of the family’s finances, will continue to feel the bar.”

After having their purchasing power eroded by inflation over the last year, Brazilians are starting to see an improvement in income. In the quarter through August, the average income of employed persons was R$2,713, up 3.1% from May (R$2,632).

However, the indicator is still low in historical terms. Income had a negative variation of 0.6% compared to the same period in 2021 (R$ 2,730) – which the IBGE considers to be statistically stable.

The weakness in income coincides with the high number of informal workers. Of the 99 million people employed in August, 39.3 million were in the informal sector.

Luiza Nassif, director of the Research Center on Macroeconomics of Inequalities at FEA/USP, also recalls that income recovery is uneven.

“Recovery is faster among white men, it is faster in the Southeast. In fact, no one has reached the average income yet. And that’s considering the emergency aid and Auxílio Brasil”, he said.

The most recent data show a significant improvement in the Brazilian labor market, with the unemployment rate in Brazil falling to 8.9% in the quarter through August. It is the lowest index in the historical series since the period ended in August 2015.

However, Nassif also recalls that, despite the recovery in employment levels, it is necessary to analyze the discouragement rate.

“So if scrapping leads to more people not even looking for a job, that could lead to a drop in the unemployment rate, while you don’t necessarily have an increase in the employment rate.”

On October 27, three days before the second round, the releases of the monthly Continuous PNAD and the Caged (General Register of Employed and Unemployed) are scheduled, which should repeat the trend of recovery in the labor market.

For Bráulio Borges, senior economist at LCA, the surprise in terms of occupancy is largely related to the sectoral composition of GDP (Gross Domestic Product), with growth driven by the civil construction and services sectors, which include education, health, food away from home, tourism and others.

“Behind the GDP of 2.7%, civil construction has grown 9% and other services, 10%. These sectors are very employers, but pay lower wages, typically a little above the national minimum wage (R$ 1,212), and also with a lot of informality”, he added.

The potential GDP growth this year, estimated at 2.7% by both the Ministry of Economy and the BC, has been used by Minister Paulo Guedes (Economy) in a campaign tone at events with businessmen.

Repeatedly, the head of the economic portfolio said that Brazil “is doomed to grow” and that the financial market has underestimated the country’s potential.

The higher forecast for this year comes on the heels of GDP growth in the second quarter, which was mainly impacted by the services sector, up 1.2%. For the third quarter, the SPE (Secretariat of Economic Policy) estimates a growth of 0.4%.

Carmo, from USP, points out that the vigor of economic activity brings other positive developments, such as the increase in tax collection – a result that has also been celebrated by the government and helps to improve the fiscal result.

Until October 30, when the second round takes place, the government will disclose the performance of the accounts in the month of September – given that it can be helped by stronger revenues. The Treasury also plans to update the projections for public debt, and any reduction in estimates can be incorporated into the government’s optimistic speech.

Borges considers that, despite the Brazilian economy being at its best moment in relation to the last five years, the overall balance is not positive.

“In fact, this year, we will be very close to the growth of the world GDP, of 3%. But, if we look at the average of the four years of the current government, the Brazilian GDP grew below the world GDP”, he said.

Guilherme Mello, an economist at the campaign of former President Lula, argues that the recent improvement does not erase the poor performance recorded since 2019, so the PT will continue to emphasize the discourse that the life of Brazilians has worsened.

“As government propaganda, of course, they will use data from the last few months, which are artificial data, because they are data created based on one-off, extemporaneous measures, to win the election,” he said.

“But I think that the feeling of the population continues to be that the economy is doing badly”, he added. “It doesn’t change our assessment. The assessment remains the same on the gravity of the moment the country is experiencing, of the disaster that the Bolsonaro government was for the Brazilian economy.”

For 2023, the Ministry of Economy predicts GDP growth of 2.5%, while the market estimates a rise of 0.53%. The BC, in turn, expects growth of 1%.