Brazil grows and curbs inflation, but its deficit skyrockets in Lula’s first year

The president of BrazilLuiz Inácio Lula da Silva, completes the first year of his mandate with a economic growth much higher than expected, the low inflation control and unemployment in single digits, but with the public deficit on the rise.

All the forecasts at the beginning of the year gave the largest economy of Latin America a meager growth close to zero, but it will close 2023 with an expansion that will be around 3%.

This “2023 was a year for Brazil regain credibility and predictability, with positive news in the economy. In 2024 we will have even more positive results for people’s lives“Lula promised this Wednesday in his social networks.

The surprising performance of the agricultural and service sectors, together with a record trade balance, have made it possible for Brazil keep your engines running in 2023, when everything seemed to be against you in a turbulent international scenario.

He unemployment has dropped a few tenths in a year to stand at 7.6%, although the informality rate remains around a chronic 40% and productivity levels are still modest.

The inflationwhich closed 2022 at 5.79%, has been reduced to 4.68% year-on-year until November, below the ceiling of the goal for this year (4.75%), which allowed the Central Bank to begin to lower rates interesttoday at 11.75%.

Liberal politics with social vision

Politically, as he did in his first two terms (2003-2010), Lula has combined a liberal macro policy with social programs for the poorest sections of Brazilone of the most unequal countries in the world.

In this sense, he recovered social programs that the far-right management Jair Bolsonaro (2019-2022) reduced or eliminated.

He strengthened subsidies for families with lower incomes, raised the minimum wage and revived various initiatives for the construction of popular housing, sending doctors to poor areas and access to cheaper medicines.

All this was possible thanks to the fact that, before even assuming power on January 1, he negotiated with a Congress leaning to the right a considerable increase in the budgets with which he put his 38 ministers to work.

“The political climate was very good. Lula and his ministers worked on the political side and that helped create a climate of optimism in the economy“, Paulo Feldmann, professor of Economics at the University of São Paulo (USP), told EFE.

At the same time, the Government has managed to gain the trust of the financial marketdespite the fact that it began with misgivings due to Lula’s criticism of the monetary policy of the central bank and for the appointment of Fernando Haddadan intellectual of Workers Party (PT), as Minister of Finance.

But Haddad He has taken off the suit of a Political Science professor and put on that of a manager, managing to approve a fiscal reform to contain expenses and another tax reform after more than 30 years under discussion in the Legislature.

The bag of Sao Paulo It is delighted and in recent weeks it has set several records, with a cumulative annual increase of more than 20%.

The deficit, the Achilles heel

The only ‘but’ is the growth of fiscal deficit nominal, which ended 2022 at 4.68% of the gross domestic product (GDP) and in September, the latest data available, it was already close to 8%, including debt interest.

The gross public debt has also grown from 73.5% in 2022, the year in which it was reduced by nearly five points, to the equivalent of 74.4% of the GDP.

The Government has set a goal for 2024 of deficit primary (difference between income and expenses, not counting debt interest) of zero.

Nevertheless, Lula anticipated that “hardly” will achieve that goal.

“The ideal would be to control expenses to have a healthier economy. I think it is very difficult to achieve zero primary deficit“Luciano Nakabashi, a researcher at USP in Ribeirão Preto, told EFE.

Haddad, concerned about the fiscal situation, does not give in and hopes to balance the accounts by increasing tax collection.

To this end, Congress approved this year the creation of two taxes for the funds of large fortunes and for Internet betting companies, and in 2024 it intends to reform the income tax and make it more progressive, so that “whoever earns more, pays more”.