By Silvio Ribas
President Luiz Inácio Lula da Silva (PT) promised national prosperity, saying his third term would feature economic growth averaged over the first two governments (2003 to 2010) – around 4% per year.
But the outlook for the next few years indicates that the promise will unlikely be kept.
“In these next four years, we will do much more than I did in my first eight years.”
“The worker will receive, besides inflation, the average growth of the GDP, as we have always done in our governments,” said the president in a union event on May 1.
Amid risks to the domestic and external economy, Lula is betting on public investment and other actions, such as a program to increase the minimum wage to reheat productive activity.
But analysts and politicians interviewed by Gazeta do Povo rule out a vigorous expansion of the Gross Domestic Product (GDP), which measures the economy’s performance.
They estimate a percentage lower than the average of the first two terms of the PT and, in the best case, a tie with the management of predecessor Jair Bolsonaro (PL), hampered by the Covid-19 pandemic and the war in Ukraine.
GDP grew by 2.9% in 2022, a deceleration from 5% the previous year. For this year, the financial market calculates a 1% increase.
For 2024, growth would rise to 1.4%.
The government’s projections are more optimistic: 1.6% growth in 2023 and 2.34% next year.
Considering market projections for 2023 and 2024, the GDP would need to jump by more than 6% in each of the last two years of the government for Lula to be able to fulfill his promise of a bonanza – a much higher number than the projections for the years 2025 and 2026 indicate.
Lula 3’s self-imposed challenge to repeat the growth experienced during his previous terms, between 2003 and 2010, will not be easy.
During the Lula 1 government (2003-2006), the average annual variation of the GDP was 3.5%, while during Lula 2 (2007-2010), this figure reached 4.6%.
The two governments’ annual averages registered 4.05% over the period.
DOMESTIC AND EXTERNAL SCENARIOS DEMAND SPEED IN REFORMS
According to Bruno Carazza from Fundação Dom Cabral (FDC), the government faces “extremely complex and challenging” scenarios inside and outside Brazil for GDP growth.
“This year’s expansion is expected to be negligible, and next year will depend on the reduction of the fiscal deficit with the new spending control mechanism, in addition to tax reform, the Chinese economy, the outcome of the war in Ukraine, and the level of interest rates in the United States and Europe,” summarizes the professor.
For Lula’s desired development to be realized, Carazza stresses the need for Congress to approve economic reforms announced by the Presidential Administration quickly and consistently.
“It was expected that the current Administration would be agile, even to take advantage of the post-election momentum.”
“Lula, however, delayed Finance Minister Fernando Haddad’s plans.”
“In case the projection of the president of the Chamber, Arthur Lira (PP-AL), is confirmed, the urgent projects will only be voted by the Senate in the second semester”, he details.
The difficulties in the economy have been dealt with by Lula, sometimes with disdain and sometimes with blaming others, such as an alleged “cursed inheritance” from Bolsonaro and, above all, the interest rate policy conducted by the independent Central Bank (BC).
In the last meeting to define the basic interest rate (Selic), the monetary authority maintained it at 13.75% per year.
The decision gave a new argument to the petista’s routine attacks on the president of the Central Bank, Roberto Campos Neto, whom he considers an agent of the opposition.
PRESIDENT CONTESTS CRITICS AND BETS ON AN UNEXPECTED RECOVERY
During a breakfast with journalists at the Planalto Palace on April 6, Lula reaffirmed his commitment to resuming economic growth as a step following the priority attention to social programs in the first 100 days of his administration.
Without stipulating what the evolution of the GDP should be in his third mandate, he said there is no “magic” to improve the indicators but rather to pursue changes that the conjuncture allows within the correlation of forces in the Legislative.
Analysts see in a realistic tone the president’s fear of the reflection of economic weakness at the polls.
In April, several indicators showed a worsening of the Brazilian economy.
The International Monetary Fund (IMF) revised its forecast for the country’s growth in 2023 from 1.2% to 0.9%.
Moreover, the average projection of market economists for inflation in 2023 rose to 6.01%, indicating prices are under pressure.
The industrial sector registered a 0.2% drop in production in February, concerning January, the third fall in a row, showing that the sector continues to face problems.
Government tax collections also indicated a drop in March, reaching R$171 billion, a reduction of 0.42% concerning the same period a year earlier.
The drop is due to the lower level of economic activity and the persistence of inflation. Finally, the unemployment rate rose from 8.6% to 8.8% in the first quarter.
With no chance of annulling the independence of the Central Bank, Lula is redoubling his accusations against the institution for acting politically and being insensitive to unemployment.
In parallel, the president invests in pressure from business people and economists critical of the highest interest rates in six years and appoints directors to the bank aligned with the government.
But the bad numbers of the economy do not necessarily lead to a drop in interest rates, considering the vigilant profile of the Central Bank and the expectation that the inflation target will only be reached in 2024.
During a debate in the Senate at the end of April, Haddad affirmed that if the Selic rate continues at its current level, the public accounts will worsen with low growth.
In public, Lula’s speeches try to keep his promise to voters of better days in the economic standing.
“We are going to grow more than the pessimists are predicting.”
“Let’s see what will happen when people start producing, buying, and selling more.”
“It will be an important leap,” he said during a ministerial meeting at the Planalto Palace on April 3.
FOR POLITICIANS AND ANALYSTS, LULA WILL BLAME OTHERS FOR THE FAILURE
According to the political scientist and general director of Ranking of Politicians, Juan Carlos Gonçalves, Brazil today is very different from that at the beginning of the century when Lula first assumed the presidency.
“The country does not count on that high valuation of mineral and rural commodities and still faces legal insecurity, with the president threatening to restate companies and extinguish regulatory frameworks,” he said.
For him, Lula’s posture scares away foreign investments and delays the advance of the GDP. “Even with a significant decrease in interest rates, it is unlikely that the country will achieve annual growth above 3% in the next few years,” he said.
Gonçalves believes that Lula will transfer the responsibility for frustrations in the economic plan to the Central Bank, Congress, or external factors.
“But this success or failure is always credited to the Executive, as taught in the phrase by James Carville, advisor to US president Bill Clinton in the 1992 election campaign: ‘It’s the economy, stupid.'”
Gonçalves believes that tax reform should be the government’s top priority since it contributes directly to GDP growth and fiscal sustainability, even without great immediate gains.
He highlights the study by economist Bráulio Borges from LCA Consultores, which foresees an economic expansion of 33% in 15 years if the project under discussion in Congress is approved.
“The scope of the reform will define if Brazil will continue with mediocre results or if it will have the sense to become a viable country,” he concluded.
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