How the economy behaved in the “departure” of governments in this century

The good moment of agriculture helped President Luiz Inácio Lula da Silva (PT) to start his mandate with a 1.9% growth in Gross Domestic Product (GDP) in the first quarter. It was the best number for an early presidential term in this century.

A closer look at the other data, however, reveals that the exuberant performance of the field was an exception. Other areas are experiencing difficulties.

Check below how the performance of the Brazilian economy was in the first quarters of each government in this century.

2003, Lula 1: swearing in heights and times of uncertainty

Mistrust in relation to what the Lula government could be left the market apprehensive in the 2002 election campaign. The dollar reached the R$ 4 mark in October. At the time, however, Brazil did not have so many international reserves to face the outflow of resources. At that time it was US$ 54.4 billion. Today, they are US$ 345.7 billion, according to the most recent data from the Central Bank, in April.

The impact of the strong currency devaluation was felt in prices. In March 2023, three months after Lula’s inauguration, the accumulated inflation in 12 months was 16.57%, according to IBGE data.

Two alternatives were used at the time: the establishment of an agreement with the International Monetary Fund (IMF) and high interest rates, in an attempt to reduce inflation and slow down economic activity. The Selic was at 26.5% at the end of the first quarter of 2003, until today the highest in a government beginning in this century.

The result was a drop of 0.3% in GDP in relation to the last quarter of 2002. Agriculture was the only sector that grew at the time. The industry had a strong retraction of 5%. And services shrank 0.5% from the previous quarter. There were reflections on private investment, which shrank by 2.8% in relation to the last quarter of 2002.

The unemployment rate at the end of March 2003 was 12.7% in the six metropolitan areas that at the time were monitored by the IBGE. Throughout the quarter, 140.8 thousand jobs were created with a formal contract, a balance that, in this century, was only better than that of the first quarter of Dilma 2, when 64.9 thousand vacancies were closed.

2007, Lula 2: surfing the commodity cycle

In 2007, the beginning of the Lula 2 government, Brazil was surfing the wave of the commodity cycle, and the first signs of what would be the biggest global economic crisis in 80 years were just beginning to appear in the United States.

The Selic rate was well below the levels of four years earlier: 12.75% per annum. Inflation measured by the IPCA closed the 12 months ended in March at 2.96%, the lowest number for the first three months of a government in this century.

The effects of this better economic situation were felt in the GDP results for the first quarter. The economy grew 1.8%, led by the service sector (2.6%). Household consumption (up 2.5%) and private investment (4.7%) had the best performances for the first three months of a presidential term since the beginning of the century.

Unemployment in metropolitan regions, however, was still high: 12%, according to the IBGE. In the formal market, companies created almost 400,000 jobs in the first three months of the year, 183% more than at the beginning of the previous administration.

2011, Dilma 1: on the wave of recovery

Brazil was experiencing strong economic growth in 2010, when GDP grew by 7.5% in the wake of the recovery from the global financial crisis – between 2008 and 2009, the world faced the recession caused by the mortgage bust subprime from the USA.

In the first quarter of Dilma Rousseff’s (PT) government, GDP grew 1.5% compared to the previous quarter, with the three major sectors – agriculture, industry and services – advancing.

Unemployment in the metropolitan regions was at 7.6% and companies created 525,600 formal jobs in the first three months of the year, which is still a record for the beginning of a term.

Household consumption grew by 1.4% and productive investment by 2.6%. It was the last time that productive investment grew at the beginning of the presidential term.

2015, Dilma 2: the beginning of a deep recession

In early 2015, after Dilma’s tight re-election, the good times in the economy were a thing of the past. Political demonstrations took over the country, and uncertainties took the accumulated inflation in 12 months to 8.13%.

Despite the unemployment rate being at relatively low levels – 8% on the national average in the first three months of 2015 – almost all other indicators of the economy showed what would be the harbinger of a deep recession, which would last until the end of the next year.

Without confidence, the productive sector entered a waiting period, closing 64.9 thousand jobs with a formal contract between January and March, the worst balance of formal employment in an early term in this century.

Families postponed shopping. Consumption shrank 1% from the previous three months. With companies postponing disbursements, another thermometer of the economy, productive investment, experienced a drop of 3%. Industry and services also shrank, contributing to a drop of 0.8% in GDP in the first quarter – the worst result for a new government in the analyzed period.

Inflation also showed signs of rising: it was 8.13% in the accumulated 12 months until March, the highest level for a beginning of term since 2007.

2019, Bolsonaro: shy growth

In the first three months of the Jair Bolsonaro (PL) government, the Brazilian economy performed much better than the beginning of the Dilma 2 administration. Even so, the numbers for the beginning of 2019 were, in most cases, weak.

GDP grew by 0.3% compared to the last quarter of 2018. Only one of the three sectors of economic activity grew, services (0.8%). Industry and agriculture shrunk.

Family consumption was the driving force behind the economy from an expenditure perspective. It advanced 1.9%, also influenced by the more moderate inflation, of 4.58% in the accumulated 12 months until March.

Other indicators, however, still showed signs of caution, especially among entrepreneurs: productive investment shrank by 1.1% in relation to the previous quarter, even with the Selic relatively well behaved, at 6.5% per year.

Between January and March, 164,200 job opportunities with a formal contract were created. Unemployment was high at 12.8% at the end of that quarter.

2023, Lula 3: saving the economy was agro

The super harvest – of almost 316 million tons, according to the National Supply Company – was a boost for the GDP figures for the first quarter of 2023.

The industry stagnated, which is not surprising in the midst of the sector’s history of retraction in recent decades. The quarterly growth of 0.6% in services, the largest sector of the economy, was below that observed at the beginning of Lula’s second term, Dilma’s first and at the beginning of Bolsonaro’s term.

The advance in household consumption, of just 0.2%, was only better than that at the beginning of Dilma’s second administration, marked by the strong recession that made the Brazilian economy shrink by almost 7% in just two years. Productive investment, meanwhile, dropped by 3.4% at the start of 2023 – the biggest drop for an early government since the beginning of the century.

Employment data is ambiguous. The unemployment rate increased in the first three months of the year and, although lower than at the beginning of the Bolsonaro government, it exceeds that seen in the first quarters of 2011 and 2015. The generation of formal jobs, in turn, has been slowing down for the second year consecutive, but it is still among the best for beginning government.

Inflation until March, although decelerating, surpassed that of the beginning of the Bolsonaro administration. The remedy to contain prices, the interest rate, is one of the highest in the analyzed period: at 13.75% per year, the Selic rate is only no higher than that of the beginning of the Lula 1 administration, when it was at stratospheric 26, 5% per year.

“The slowdown in economic activity in 2023 is a reflection of the lagged effects of the increase in the Selic rate”, point out Bradesco analysts.

Default and income commitment are high. According to the Central Bank, in March the debt of families with the national financial system reached 48.51% of income accumulated in the last 12 months – the indicator exceeds 48% since October 2021.

According to Serasa Experian, in April 71.4 million Brazilians – 43.8% of the adult population – had credit restrictions.

Expectations are that, from now on, economic activity will take more timid steps, including the possibility of a retreat in the second quarter, point out Bradesco analysts.

However, 2023 is expected to close in the blue. The financial market is revising growth projections for this year upwards – the median of expectations reached 1.84%, compared to 1.02% four weeks ago.