Business · Markets · 9 hrs ago
Market gains depend on Brazil’s next government improving public finances
Markets in Brazil rallied this week after Flávio Bolsonaro took an advantage over President Luiz Inácio Lula da Silva in the first-round vote.
Future interest rates fell, the stock market rose above 200,000 points and the dollar dropped below 5 reais.
Investors expect an opposition government could tighten control over public spending, but economists say the market mood depends on what the next government actually does.
Brazil’s government projects that public debt will reach 83.7% of the economy by the end of 2026, its highest level in five years.
Higher debt and continued deficits can make it harder to cut interest rates and can keep investors cautious.
Bolsonaro has promised to curb spending, while Lula says he would keep the existing fiscal framework and control spending growth; neither candidate’s platform gives detailed adjustment measures.
Economists say concrete steps to improve the debt outlook would be needed to sustain the market gains, whoever wins.
Market gains after Flávio Bolsonaro’s lead over Lula in the first round will depend on the next government improving Brazil’s public finances, economists told Folha.
The market rally this week included a fall in future interest rates, the Bovespa rising above 200,000 points and the dollar dropping below R$5.
Investors’ expectations of fiscal adjustment under an opposition government contributed to the positive reaction.
Economists say better control of public debt could reduce investor risk premiums and support lower interest rates and stronger equities.
Brazil’s gross debt is projected to reach 83.7% of GDP by the end of 2026, according to the 2027 budget bill.
- Who
- Economists consulted by Folha, investors, and presidential candidates Flávio Bolsonaro and Lula.
- What
- Economists say market gains depend on the next government improving public finances.
- When
- The market reaction followed the first round of the election and took place this week.
- Where
- Brazil.
- Why
- Improving the trajectory of public accounts could reduce perceived risk and support lower interest rates; persistent deficits and rising debt could hinder that.
Flávio Bolsonaro
Lula
Fiscal approach
Flávio Bolsonaro
Flávio proposes a major cut in public spending and says he would stabilise and then reduce debt relative to GDP.
Lula
Lula says he intends to maintain the fiscal framework, control spending growth and improve public-spending efficiency.
Spending cuts
Flávio Bolsonaro
Flávio’s economic team is studying measures for an initial adjustment, although he publicly denies intending to adopt some of the measures under discussion.
Lula
Lula criticises the possibility of cuts, saying they could affect social programmes, the minimum wage and retirees.
When he talks about cutting R$ 200 billion, do you know what they are going to cut? They are going to cut Pé-de-Meia, Farmácia Popular, Minha Casa Minha Vida, school meals, Gás do Povo, they are not going to give workers a minimum wage increase above inflation. And they are not going to give retirees a minimum wage increase.
Market enthusiasm over Flávio Bolsonaro’s lead over Lula contributed to a rally in Brazilian assets.
Foreign investors put more than R$10 billion into the Brazilian stock market.
The Bovespa rose above 200,000 points, the dollar fell below R$5 and future interest rates dropped sharply.
- Projected gross debt
- 83.7% of GDP by the end of 2026
- Foreign investment
- More than R$10 billion entered Brazil’s stock market in the trading session after the first round
- Five-year CDS spread
- 108.81 points, its lowest level since May 2024
- Flávio team’s proposed initial adjustment
- About 2% of GDP, or R$250 billion
- Lula’s fiscal plan
- Maintain the fiscal framework, control spending growth and improve spending efficiency
Sources
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