The social and political agreement that Lula needs – 04/29/2023 – Vinicius Torres Freire

It is quite possible that the economy’s growth will be much higher than the forecasts of near stagnation that are still made by the average of economists in the private sector. GDP would grow by 0.9% in 2023, according to the median of estimates compiled by the Central Bank. Economists at a bank like Bradesco, however, already estimate an increase of 1.8% of GDP.

It’s less than mediocre, but with social hardship a bit less and government accounts less damaged.

For 2024, the forecast is for growth of 1.4%; for Bradesco staff, 1.5%. Little was understood about what happened in 2022 (growth far beyond expectations) and the projections for this beginning of the year are very flawed. Therefore, dealing with 2024 seems like a distant kick.

But the issue is of political interest, it depends on a lot of politics and also on what will happen to inflation and interest rates. If the government backslides in 2023, if it doesn’t make the tough changes, it could have another less than mediocre growth in 2024 and, thus, lose the political conditions to start rebuilding the country.

Slightly higher growth this year, with average wages still rising strongly (but still low), suggests that interest rates will stay at higher levels for longer. The year 2024 is already being contaminated by an IPCA that is still high (should close 2023 at 6%, with a forecast of 4% for next year), by a Selic that should only start to fall in August, if it does, and conditions tight overall finances. The bank credit contraction only started at the end of 2022 and is expected to last for months; the capital market took a huge tumble.

As for politics, consider that the course of the economy is that of the predictions. In the biennium 2023-24, GDP growth would be very similar to that of 2017-19 (after the Great Recession, before the epidemic). In other words, an intolerable pace for a country where the per capita income level (GDP) is still below that of 2011 and which has just elected a government from which it expects renewal and reconstruction.

But it is possible to improve in 2024, even if the economy is not going to take off, currently it is optimism to foresee growth beyond the average of this century, of 2.4% per year. To do so, a very large political effort is needed. The Lula 3 government is playing its decisive game this year.

Growth could be a little higher if the said fiscal framework is approved with tighter numbers and rules than the one proposed by the government. That is, with a smaller increase in expenditure and rules that make the planned primary surplus possible. This is the decisive node of Lula 3.

That grip is in the hands of Congress. But it is unlikely that a bigger change will come than a mandatory surplus rule.

The rest is known. A tax reform takes time to have a practical effect, but it would change expectations. The government needs to approve the reasonable changes it has proposed to the credit. The rules for investment in water and sewage, the “sanitation framework”, needed to be improved, but hindering private investment is a bazooka shot in the foot. It impedes job creation, social improvement and creates suspicion that the government has opted for wrong State interventions.

Reviewing mandatory expenses and linkages is another task for the year. For the time being, the government is giving signs that it will worsen the situation, although Minister Fernando Haddad (Finance) has plans, still secret, to improve it.

The approval of all this depends on a great, explicit agreement, presented with solemnity, conducted by the President of the Republic, without noise and nonsense talk. It is not routine political politics. The government needs to rearrange its house, clarify the program, fine-tune its discourse and summon relevant political and social forces for this agreement. It was the idea of ​​the “broad front”.

PRESENT LINK: Did you like this text? Subscriber can release five free hits of any link per day. Just click the blue F below.