Many Brazilian companies and investment managers are delaying new projects while they wait for details about President Luiz Inácio Lula da Silva’s fourth term, including the appointment of a finance minister and the government’s economic policy. The pause follows a sharp market reaction to Lula’s election victory, with the stock market falling 18% and the dollar rising 9% in the preceding week, according to the report.
There are no figures measuring how widespread the wait-and-see approach is. However, business leaders, economists and consultants told Folha that companies are maintaining day-to-day operations while putting off investment and expansion plans, particularly where financing is needed. Ricardo Lacerda, founder and CEO of investment bank BR Partners, said some projects had effectively stopped.
The response varies by sector. Cláudio Frischtak, head of infrastructure consultancy Inter.B, said long-term investors may still pursue opportunities as they arise, but high interest rates make fewer projects financially viable. He also warned that uncertainty could lead investors to choose countries with more predictable policies.
Analysts are watching both the government’s fiscal plans and whether announced measures are implemented. João Machado, a senior economist at S&P Global Market Intelligence, said the market would focus on both aspects. The incoming administration faces elevated interest rates and public debt, slower growth and inflation pressures, while campaign commitments could add an estimated R$40 billion to R$50 billion in spending in 2027, according to Alexandre Andrade of the Senate’s Independent Fiscal Institution.
The report said financial markets do not currently see a risk of Brazil defaulting. The country’s five-year credit default swap was around 135 points on Thursday, far below the roughly 2,000 points recorded in 2002, when Lula first won the presidency.
Fiscal concerns remain central to the investment outlook. Federal spending reached R$1.9 trillion from January to September, up 5.4% after inflation from the same period a year earlier, while revenue rose 6.5%. The primary deficit, which excludes interest payments, stood at R$90.2 billion. Gross public debt reached 82.9% of GDP in September, according to figures cited in the report.
High borrowing costs are also weighing on households and businesses. In August, 82% of families were in debt, while 9.3 million businesses had overdue debts totaling R$244.4 billion, according to Serasa Experian. Economists quoted by Folha said that a fiscal improvement would be needed for interest rates to fall and warned that continued debt growth could raise the risk premiums investors demand to hold Brazilian government bonds.
Some specialists, including economists outside the traditionally more orthodox camp, have called for changes to public spending. Nelson Marconi, who helped develop Ciro Gomes’s presidential campaign economic platforms in 2018 and 2022, proposed changes including adjustments to the minimum-wage indexation rule and a future reform of the pension system. For now, business and investor decisions are largely on hold as they wait for the government to signal its direction.
Sources: Folha Mercado.