At the end of the campaign and in the victory speech, Luiz Inácio Lula da Silva (PT) emphasized the pleasant aspect of his government plan. That is, the intention to improve the living conditions of the poorest in particular, through increased government spending.
He didn’t give a clue as to how he intends to help the economy work better in order to pay the bill for this plan and also to employ more people with better wages.
More than the situation of the world economy, this is the leading uncertainty and this is Lula 3’s biggest problem, at least for now. A severe recession in the world, even worse if China grows very little, would complicate the task of the new government, of course.
At this point, forecasts for the coming year are often very wrong. That said, it is estimated that inflation (IPCA) would fall from 5.61% forecast for 2022 to 4.94% in 2023. GDP would grow around 2.7% this year and only 0.6% in the year that comes -stagnation, in practice.
The economy should slow down because the interest rate (raised to control inflation) tends to have its full effect in 2023. Just notice how it became more expensive to finance a house or car or raise capital for business expansion.
The economic stimulus effect of extra federal government spending and state and municipal investment will diminish or cease. There should be no increase in the price of goods that Brazil exports the most (iron, grains, meat and even oil), commodities, a high that usually stimulates growth here.
Inflation tends to fall because the government paid for the reduction in energy and services prices and because of the economic slowdown (increase in unemployment). The exchange rate (the “dollar price”) is expected to remain more or less at the current level.
Problems can start there. With interest rates rising in the US and a de facto recession in Europe, the dollar may strengthen. In general, the Brazilian currency follows this movement, but downwards (more devaluation). A more expensive dollar is an obstacle to the fall in inflation.
This may not be the case if there are policies that encourage government creditors and businesses in general. What policies? Those that counterbalance the large increase in public spending promised by Lula.
The more restrained the increase in spending, the lower the risk that the real will depreciate and that Brazil’s interest rate will rise (due to the prospect of higher inflation or other misgivings). The larger the match package, the lower the risk.
The first counterpart would be a reliable plan to control the deficit and, therefore, the increase in public debt. Lula will have to present some kind of “ceiling” plan, limiting the increase in debt and its stabilization (until 2026, at least). In addition to a “Lula ceiling”, a plan for spending on civil servants would contribute (the so-called administrative reform).
The second counterpart would be a plan that improves the functioning of the economy. For example, the facilitation of private investment and the almost mythological tax reform. More than simplifying the payment of taxes, the objective of this reform is to end economic distortions. Currently, much investment in business expansion is made because the tax on this or that sector is lower, not because it is more efficient. Less efficiency means more poverty.
But Lula presented only the A side of his plan. That is, more spending on the Novo Bolsa Família, an increase in the minimum wage (which increases spending on social benefits, such as the INSS), readjustment of civil servants, less income from income tax. In the “Letter to Brazil of Tomorrow”, released shortly before the second round, there is much more promised expenditure.
The increase in spending in 2023 will be, in part, inevitable, for political and social reasons. The less restrained it is and the less counterparty there is, the greater tend to be inflation, the devaluation of the real (“high dollar”) and interest rates in the market, perhaps even the Central Bank. This means less GDP growth, whatever the course of the world economy.
Chad-98Weaver, a distinguished author at NewsBulletin247, excels in the craft of article writing. With a keen eye for detail and a penchant for storytelling, Chad delivers informative and engaging content that resonates with readers across various subjects. His contributions are a testament to his dedication and expertise in the field of journalism.
