Synthesis of the Brazilian Economy

BRAZIL ECONOMICS - Report 05 May 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

OVERVIEW

LULA’S PLANS FACE A HOSTILE REALITY

The Lula administration has found its helmsman in marketing strategist-turned-minister Sidônio Palmeira, making it clear that everything will be done to ensure the PT remains in power beyond 2027. This plan, however, will face serious challenges, ranging from the negative effects of inconsistencies between macroeconomic policies—such as the fiscal policy bearing the cost of election-oriented handouts, thereby undermining the monetary policy’s mandate to bring inflation to target—to the ghosts of corruption that persistently resurface in the current government amid the impunity that has taken hold in the country.

THE PLANS – Lula has stopped publicly questioning whether he will be able to run again, betting that the current strategy will reverse his low popularity and that his age will not be an obstacle. A poll by AtlasIntel, released on the 28th, shows a 1.1 percentage point drop in negative approval ratings (bad or terrible), now at 47.7%, while positive approval (great or good) rose by 2.8 points, reaching 40.2%—still below the negative figures.

The response, though modest, was aided by the launch of privately-funded payroll loans. The risks embedded in this new lending model—due to legal and operational inconsistencies—have made major private banks remain cautious. However, the initiative has been well received by public banks and smaller financial institutions accustomed to operating with higher risk.

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