New Brazil government faces economic challenges

Significance

For 2023, the market expects a significant slowdown, with growth of around 0.8%. This presents a highly challenging context for President Luiz Inacio Lula da Silva and his finance minister, Fernando Haddad.

Impacts

• The Bolsonaro government’s "fiscal bombs" will contribute to a significant fiscal deterioration this year.
• Market concerns over Lula’s policy plans could reinforce expectations of a slowdown this year.
• Global market intelligence firm FrontierView forecasts growth of only 0.7% this year.
• A key challenge will be how to make short-term fiscal flexibility and long-term fiscal sustainability compatible.