Lula may be more radical in the economy than he was in the past, assesses Citi’s research chief

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The return of Luiz Inácio Lula da Silva to the helm of Brazil creates uncertainty in the financial market by raising doubts about which economic policies will be adopted, said Nathan Sheets, chief global economist at Citi Research, a research department of the same group at Citibank.

“The election [no Brasil] is characterized by significant uncertainties, which are likely to contribute to volatility. There are several different scenarios if you have Bolsonaro re-elected versus Lula elected. And if it’s Lula, there’s a fair amount of uncertainty about what kind of policies [econômicas] he will pursue,” said Sheets, during a virtual meeting with journalists this Friday (28).

“His rhetoric might make one think that they would be more radical on the left than in his record. When he was there before, he was more moderate, and it’s an open question about which Lula will take office. These are the uncertainties and questions that the markets are facing. dealing with as they think about the implications of the election,” he continued.

Sheets, who is based in New York, also said that the Brazilian economy should have a year marked by challenges, such as the risk of stagflation, the combination of high inflation and low or no economic growth.

“The Fed’s possible rate hike [banco central dos EUA] would likely put pressure on global liquidity, with implications for the Brazilian economy. And Brazil will probably feel some headwind from the new reality of Chinese growth this year”, he pointed out. China is the biggest buyer of Brazilian exports, and a drop in demand there would reduce the earnings of Brazilian companies.

The economist considered, however, that the Brazilian economy has great capacity to recover from this bad phase in the medium and long term. “I’ve seen cycles in which Brazil grew very quickly.”

Sheets, 57, was under secretary for international affairs at the US Treasury Department from 2014 to 2017 under Barack Obama. He has been with the Citi group, one of the top US financial companies, since October 2021.

Lula, who has not yet confirmed his candidacy for the presidency, has not disclosed the details of his plan for the economy. In interviews, the former president has defended that the State take more actions to stimulate development, which can generate more public spending. And members of the PT, such as the party’s president, Gleisi Hoffmann, have recently criticized the 2017 labor reform and the public spending ceiling.

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