Major challenges for the Brazilian economy

The Brazilian economy will face major challenges in 2023 at the start of the new government of Luiz Inácio Lula da Silva. 

These are marked by uncertainties on the international scene, the need to keep inflation under control and the recovery in economic growth to continue. 

Experts say the focus should be on striking a balance between promises to strengthen social policies and the tax issue within Latin America’s largest economy, to avoid a spike in public debt. 

For Roberto de Goes Ellery Junior, economics professor at the University of Brasilia, economic activity in 2022 benefited from stimulus policies related to the attempt to re-elect President Jair Messias Bolsonaro, who was defeated by Lula da Silva in October’s elections.

“Looking at the figures for 2022, an interesting result emerges: good growth in the Brazilian economy and high inflation, but lower than in other countries, for example the United States and Europe. My assessment is that it was a seemingly good year, but that it could come at a heavy price later, as has happened in Brazilian history. I’m concerned about the tax result with increased revenue because much of it is the result of inflation. In 2022 we had positive numbers due to short-term policies and in 2023 we have to foot the bill for those policies as the new government tries to fulfill campaign promises,” the professor said. 

At the same time, the impact of such an increase in spending could create problems, “because nobody likes high interest rates, inflation or exchange rate depreciation”. “In my estimation, 2023 will be a complicated year, both from an economic and a political point of view. It will take great skill for the government to overcome the difficulties, achieve good results and meet the needs of society,” he added.

Luis Antonio Paulino, economics professor at the Universidade Estadual Paulista, argued that Brazil’s pace of growth, which was quite positive in 2022, is likely to be hampered next year by the uncertainties in the international environment. 

“In 2022, growth in Brazil is expected to be 2.8%, above the developed world average but below the global and emerging market averages. What supported economic growth in 2022, despite the problems, was the recovery of post-pandemic activity, particularly in the service sector, as the restrictions imposed by the COVID-19 pandemic eased,” analyzes Paulino. 

In his view, the prospects for 2023 point to a 1% growth in the Brazilian economy. “In the manufacturing sector, the rebuilding of stocks by industry also helps sustain economic activity in this sector. However, it is unlikely that these positive factors will still be effective in 2023, so all projections for 2023 are worse than those for 2022,” he believes.

Economist Sergio Rosa, a specialist in public policy and government management in the federal government, pointed out that since 2016, the Brazilian economy has undergone major changes from neoliberal policies. 

“There was a disorganization of economic production with an apparent lack of coordination of activities, which directly affected the results, especially the results of the basic income social policy for the most needy population,” he stressed. 

All of this has been exacerbated by the COVID-19 pandemic and the conflict in Ukraine. “The balance sheet of the Brazilian economy in the last six years is a restructuring accompanied by a disorganization of production and the credit system, mainly due to the new banking technologies“.

The return of the Workers’ Party (PT) to power opens up the possibility of policies of greater coordination and productive integration. 

“Prospects are very favorable with the Lula government to provide the Brazilian state with strong ‘enforcement’ of the law, combined with an increase in its ability to coordinate production with social policies and to position itself advantageously in the new matrix of global value chains integrate,” emphasizes Rosa.

With information from latinapress