The Challenges Facing the Government In 2024

BRAZIL ECONOMICS - Report 08 Jan 2024 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

We’re starting 2024 – the first year of the new Fiscal Framework. Although the successive cuts of the SELIC rate have made monetary policy looser, it is still sufficiently restrictive to reduce economic growth. How will the government react to a reduction of GDP growth from 3.1% to 1.5%? The confrontation between Finance Minister Fernando Haddad, on one side, and Presidential Chief of Staff Rui Costa, backed by “PT stalwarts”, on the other, will give an idea of what will likely occur.

It will be up to Lula to decide between supporting Haddad by maintaining the primary result target, which is already threatened by the difficulties of boosting revenues, and altering it to avoid placing budget allocations on contingency and the locking mechanisms imposed by the Framework. A pragmatic Lula will tend to favor Haddad, while a Lula worried about this year’s municipal elections will tend to favor fiscal expansion.

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