Brazil’s elections raise more questions than certainties

Brazil will have the first round of what is arguably its most important presidential election since the return of democracy on October 7th, with a second-round vote to be held on October 28thif no one candidate exceeds fifty percent of the vote in the first round (which FSG believes is unlikely). Here we lay out what multinationals need to understand about this year’s presidential elections in the world’s 8thlargest economy:

  • The electoral outcome is still highly uncertain: Current polling does not signal a clear victory for any one candidate, though it does point to some early favorites including far-right leaning candidate Jair Bolsonaro (PSL) and populist Ciro Gomes. However, without a single strong candidate in the running, blank and null votes are near 30%, leaving plenty of room for large swings in polling results over the coming months as the campaign season takes off.

  • There are several outstanding questions that could swing the election over the coming months: To begin, the center-right has yet to form a strong coalition around a single candidate. While there are ongoing efforts to build a coalition, ultimately there is a chance that the center-right fails to coalesce, thus opening a pathway to see a second-election between the right and left-wing candidates. Second, there is still the possibility that currently imprisoned ex-president Luiz Inácio Lula da Silva could find a way into the election (while the likelihood of this happening is low, such an outcome would have a very significant impact on the electoral chances of the other candidates), or that he could be released early from prison in order to campaign for his selected alternative (and equally sway electoral chances).

  • The outcome of the election will dictate the outlook for economic growth and the exchange rate: Brazil still requires reform of its pension system that has a deteriorating deficit, without which the market risks entering a double dip recession. Considering this situation, market actors will be closely monitoring the position of the candidates on pension reform in addition to their likely ability to pass said reform should they be elected. Due to this situation, polling data throughout the campaign, and the ultimate electoral outcome will likely drive large market swings depending on the perceived impact on the likelihood that pension reform will or will not be eventually passed in 2019

Given the mounting uncertainty regarding the electoral outcome, and the high stakes implications for the economy, multinationals should consider multiple possible scenarios and their potential impact on business plans as they approach their strategic planning for 2019.

Current FSG clients can leverage our recent Brazil Election Scenarios report to better understand the potential implication and shield their strategic plans from potential disruption. Not a client? Please contact us to learn more.

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