In November, former President Luiz Inácio Lula da Silva (PT) was elected for an unprecedented third term in Brazil, narrowly defeating the incumbent candidate, President Jair Bolsonaro (PL). With Lula’s election as Brazil’s next president the region’s pivot is complete; the six largest Latin American countries now find themselves under leftist leadership. However, the tight voter differential – the smallest since re-democratization – and Brazil’s congress composition signal a fragile popular mandate that will influence and delineate the Lula’s levels of governability, a vastly different context to this president’s previous two terms.


Brazil’s right leaning Congress will be a limiting factor on Lula’s governing agenda. The PL – Bolsonaro’s current party – secured 99 out of 513 seats in the lower house, controlling 20% of its seats. While the PT coalition remains the second biggest party in the Chamber of Deputies, the strong performance of right-leaning parties will limit Lula’s political capital vis-à vis his earlier terms. Notably, PT’s minority position in Congress will limit this government’s ability to approve policies Brazil must implement to decrease its country risk, notably a tax reform and a new fiscal anchor to stabilize the country’s public debt. On a more positive note, the current congressional composition will limit the chances of presenting – let alone approving – disruptive reforms such as a repeal of the 2017 Labor Reform or the 2019 Social Security Reform. 

While Lula’s economic policies face notable resistance within the newly inaugurated Congress, the prospects of passing a fiscal reform and introducing a new fiscal anchor by the end of H1 will remain the key pillars of Lula’s economic agenda for 2023, and will spearhead the country’s risk assessment for the year. We expect a watered-down fiscal reform – unifying the two current proposals being discussed in Congress – simplifying the country’s bureaucratic taxes on consumption. However, the legislation will likely fall short of solving the tax distortion at the state level. The unveiling of Brazil’s new spending cap – expected in late Q1/ early Q2 – will be a key signal to investors of how Brazil’s new government will balance showcasing fiscal responsibility amid a continued mandate to maintain higher levels of social spending.

Our View

After better-than-expected growth in 2022, on the back of resilient consumer spending and domestic investment, Brazil’s growth will fall below 1.0% YOY, as 2023 brings a convergence of challenges to Brazil’s economy, including slowing consumer spending (on the back of still-high inflation and debt servicing costs), lower domestic investment generation, and ongoing fiscal concerns. 

To remain competitive in Brazil’s dynamic operating environment, multinationals should maintain a higher frequency of business review meetings, as 2023 will likely continue to be unpredictable from demand planning and inventory management standpoints. Using FrontierView data and insights, clients can plan for industry-level impacts from partial implementation of Lula’s policy agenda as well as monitor broader macroeconomic trends and developments.

Download the executive summary of our Brazil Post-Electoral Snapshot

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