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Brazilian elections surprise

Craig Botham, Emerging Markets Economist at Schroders, comments on the first round of the elections in Brazil…

As expected, incumbent Dilma Rousseff won the largest share of the vote in the first round of elections, taking 41.6% of valid votes. However, unexpectedly, her opponent in the second round (to be held on 26th October) will not be Marina Silva but Aecio Neves, who obtained 33.5% of votes. Marina placed a distant third with only 21% of votes cast.

This surprising result – following polls showing a strong second place finish for Marina – is likely attributable to dismal televised debate showings by the socialist candidate. The implications for the rest of the race, and the Brazilian economy, are ambiguous. While Neves has stronger reform credentials than Marina, polls up to this date have consistently shown his defeat in a second round run off with Dilma. 

A problem Neves faces is the ability of Dilma’s campaign to portray him as a rich playboy, out of touch with the needs of the average Brazilian.  This makes it doubtful whether Silva supporters will automatically transfer their support.  One encouraging point here is the stronger than expected performance of Neves’ PSDB (Brazilian Social Democracy Party) in the northeast of Brazil – typically a stronghold of Dilma’s PT (the Workers' party). It remains to be seen whether Marina will formally endorse Neves; without this, it is difficult to foresee his victory.

Beyond the electoral uncertainty, however, the macro outlook remains uncertain because whoever wins, there can be no immediate turnaround. Brazil faces a plethora of deeply entrenched macroeconomic problems, and while policy can make a difference it will take time to reverse the damage of the past few years. Still, a negative outcome now seems more likely than before, given the incumbent’s track record on economic policy.

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