Datafolha: pessimism with economy grows under Lula – 02/04/2023 – Market

The percentage of Brazilians who say they believe in a worsening of the country’s economic situation in the coming months increased in March, points out the first Datafolha poll on the subject carried out after the beginning of the government of President Luiz Inácio Lula da Silva (PT).

In the previous round, held in December and shortly after the election of the PT, 20% said they expected a worsening of the Brazilian economy – now, this percentage is 26%, the same level as those who believe that there will be no change. Among those counting on an improvement, there was a drop from 49% to 46%.

2,028 interviews were carried out on the 29th and 30th of March across the country, distributed across 126 municipalities. The margin of error is plus or minus two percentage points.

Regarding the situation in Brazil in recent months, the greatest perception is of continuity: 41% say it is the same (35%), 35% say it has worsened (against 38%), and 23% say it has improved (26%). .

When asked how their personal economic situation should look, 56% answered that it will improve (59% in the last survey), 14% said they believe it will get worse (compared to 11% before) and the same 28% report that it should stay as it is.

With the expectation of unemployment, pessimism also increased compared to the previous Datafolha: now, 44% speak of an increase in unemployment (up from 36% three months ago), while 29% count on a reduction (compared to 37%).

Recent labor market data help reinforce this expectation. According to the Continuous PNAD (National Household Sample Survey), the unemployment rate rose again in the quarter through February, to 8.6%, after falling for six quarters. The market expects that unemployment will continue to rise, with the worsening of the economic situation.

As for formal employment, considering January and February, 326,356 vacancies were opened, according to the Caged (General Register of Employed and Unemployed), of the Ministry of Labor. It is the lowest result for the first two months of the year since the reformulation of the register, in 2020.

Entering its fourth month, the government has dedicated its economic and social agenda to rebuilding programs that marked its past administrations, such as Bolsa Família and Minha Casa, Minha Vida, and to presenting the new fiscal framework (which will replace the spending).

But in addition to the political opposition in Congress and outside it, with the return of former President Jair Bolsonaro (PL) to the country, the government faces a more adverse economic situation than that of Lula’s first terms.

The Minister of Finance, Fernando Haddad, needs to equate the uncertainties surrounding the world economy, with the War in Ukraine and a lower perspective of Chinese growth, in addition to inflation and high interest rates around the world and a scenario of commodity prices very different from the one cycle of growth experienced by Lula back then.

Internally, the government also had to deal with the wear and tear of the return of federal taxation on fuel —which had been relieved by Bolsonaro on the eve of the 2022 elections—, announcements of collective vacations by automakers and a dispute with the president of the Central Bank, Roberto Campos. Neto, due to the drop in interest rates.

“Lula 3 begins with a growth cycle for the economy down there. The good thing is that from now on it will grow again, especially if the Central Bank cuts interest rates and the fiscal package has credibility. Brazil can grow again, from 2024 to 2026, at a pace above 3%. But Lula needs to be patient”, evaluates Luiz Carlos Mendonça de Barros, former director of the Central Bank.

“People are pessimistic because the economic situation is objectively bad and they are not perceiving the economy. There was an undeniable increase in fuel prices, and the relief from last year’s cut was lost with the return of taxes”, says José Luis Oreiro, professor at UnB (University of Brasilia).

When looking at their pockets, 54% of Brazilians expect to see an increase in inflation (15 percentage points more than in December), 20% think it will decrease and 24% do not expect a change, according to Datafolha.

For the purchasing power of families, expectations are more balanced: 33% say it should increase, 31% speak of reduction and 34% do not expect change.

According to Oreiro, there are signs of weakening food inflation that could bring relief to Brazilians, and the government should also design a new policy for fuel. But Lula’s challenges in the economy are still great.

“In these three months it was necessary to rebuild a series of policies that were destroyed by Bolsonaro and it is necessary to come up with a credit policy and take millions out of debt.”