What a comeback. What a comeback on a comeback. The rise of Flávio Bolsonaro, son of Brazil’s most divisive president, was extraordinary. But so was the ultimate victory of Luiz Inácio Lula da Silva. What does this mean?
The immediate answer from financial markets was something approaching a nervous breakdown. Brazil’s Bovespa index plunged 13.9% on Monday, its largest fall since the Covid crisis, while the dollar jumped 8.2% against the real. Investors had convinced themselves that Bolsonaro would win, particularly after his remarkable first-round performance, and had piled into Brazilian assets in anticipation of a more fiscally conservative government.
Instead, Lula won 51.79% of the vote, overturning a first-round deficit to secure an unprecedented fourth term. At 81, he has demonstrated a political durability that makes most politicians look positively disposable.
But behind the market hysteria lies a fascinating economic contradiction. Brazil’s government finances are dreadful, but the economy itself is doing fairly well.
The economy grew 3.2% in 2023, 3.4% in 2024 and 2.3% last year. Unemployment is just 5.3%, real incomes have been rising and inflation has moderated. Growth has slowed this year, but Brazil is hardly an economic basket case.
Trump card falls flat
The government, however, is running a deficit of 9.48% of GDP, with gross public debt approaching 83% of GDP. Remarkably, 8.86 percentage points of that deficit represents interest payments. Strip those out and the primary deficit is just 0.62%.
Gustavo de Carvalho, head of the African Governance & Diplomacy Programme at the South African Institute of International Affairs, argues that this distinction is crucial to understanding the election.
“If we’re looking to the fundamentals, the basis of the economy at the moment, the country’s not in an economic crisis,” he says.
The market reaction reflects both the genuine fiscal dilemma and the unwinding of an enormous speculative bet on Bolsonaro. De Carvalho questions whether the economic fundamentals justify anything resembling a sustained collapse in asset prices.
The election was fought in the shadow of another president: Donald Trump. Bolsonaro’s political movement has close ideological ties with the right in the US, but De Carvalho says this relationship works in both directions. “The Brazilian far right and the US far right, they feed one another."
Yet Trump’s influence was not necessarily helpful to Bolsonaro. De Carvalho argues that an overt US intervention could have alienated Brazilian voters sensitive to the suggestion that their country was becoming subservient to Washington.
Indeed, he believes the louder Trump had been, the more likely Brazilians would have been to move away from Bolsonaro.
Lula’s victory represents an important development for Brics, particularly for South Africa. It preserves a Brazilian administration committed to creating what De Carvalho calls “spaces of autonomy within the global order”, rather than aligning itself closely with Washington.
President Cyril Ramaphosa was almost extravagantly enthusiastic, calling Lula his “dear brother and friend” and describing the result as a victory for the Global South.
There is, however, a qualification. De Carvalho points out that Brazil and South Africa might share remarkably similar views on international politics, but their relationship remains surprisingly shallow. Bilateral trade is modest, and though they frequently vote alike in international institutions, it’s without actually co-ordinating their positions.
Lula’s re-election creates an opportunity to give that relationship more substance, particularly following Ramaphosa’s visit to Brazil earlier this year.
A divided nation
But the election has also exposed the enduring polarisation of Brazilian society. Bolsonaro’s political movement remains formidable, and the country’s congress has moved further to the right even as voters returned a left-wing president.
And there is one final question. Who succeeds Lula? His extraordinary personal popularity has become both the Workers’ Party’s greatest electoral asset and its most awkward succession problem.
For the moment, Brazil has voted for continuity at the top, a stronger conservative presence in congress and an international role independent of Washington. The markets have voted for something else entirely.
The challenge for Lula is to reconcile those competing verdicts without destroying the economic resilience that helped return him to office.
