Brazil’s economic challenges after the Lula–Bolsonaro runoff

President Luiz Inácio Lula da Silva or opposition contender Flávio Bolsonaro will face substantial economic challenges in the upcoming runoff. Brazil, with a population of 214 million and a nominal GDP of US$4.1 trillion, is the second-most populous nation in the Americas and the continent's second-largest economy. The outcome of the election will be closely monitored, especially in Argentina, a major trading partner.

The incumbent president will need to strike a balance between reducing the fiscal burden and preventing slower economic growth. Economists observe a slowdown in economic activity, with GDP growing 0.5% quarter-on-quarter and 2% year-on-year in the second quarter. Unemployment is at 5.3%, and real wages are rising, but consumption is declining due to high real interest rates.

These rates, currently at 13.75%, are attracting capital inflows but also contributing to rising household debt. The government's fiscal deficit is alarming, reaching 9% of GDP, with interest payments creating a significant deficit in Lula's accounts. Regardless of who wins, fiscal restraint is expected to slow growth in 2027. Bolsonaro may pursue spending cuts and structural reforms, while Lula might focus on tighter spending controls while preserving social programs.