Missed opportunities and setbacks

Economic growth has lost its strength and, unlike previous years, its strength has not been surprising. Since 2021, the performance of the economy has far exceeded analysts’ projections, which will no longer be the case today. GDP should close with growth of 2.3%, slightly higher than that expected a year ago (2%).

In recent months, domestic demand has practically stagnated, which has even had an impact on the creation of vacancies in the labor market.

Government stimulus measures have been more modest this year, with better control of the Union budget. This is despite the increased use of parafiscal measures, such as targeted (subsidized) credit, which increased by 0.9 percentage points of GDP in one year (October data), driven by government credit initiatives.

In the meantime, the budgetary excesses of previous years have taken their toll. By fueling inflation, they demanded an increase in interest rates from the Central Bank between September 2024 and June 2025, taking the wind out of the economy this year. There has been no shortage of warnings about this risk.

The government cannot complain about its luck, however. Several factors worked in its favor. The economy relied on a record harvest and the resilience of global trade, despite stagnant Chinese imports. Without the contribution of the agri-food and extractive industries, GDP growth would be around 1.5% this year.

Additionally, the external framework has contributed to British Columbia’s efforts to reduce inflation. The weakening of the dollar around the world and low external inflation at the producer level (influenced by deflation in China) have helped a lot. The latter also avoided an unfavorable scenario of continued high interest rates in the United States, even with Trumponomics.

Thus, and with Selic at 15% per year, the inflation rate should end 2025 at 4.3%, lower than that forecast a year ago (5%) and lower than the target ceiling (4.5%).

While the macroeconomic situation is poor, setbacks and missed opportunities are accumulating in the decisions of the three powers. It is worth mentioning a few more illustrative ones.

Lula’s gain in political capital from Trump’s tariffs was misused, judging, for example, by the approved budget for 2026. Once again, government actions focused on increasing revenues, without concrete structural measures to contain spending growth. To make matters worse, the government paid a high price for its approval, with an increase in parliamentary amendments and the rule to release 65% of the mandatory ones in the first half, in view of the electoral campaign.

Parliamentary amendments, supposed to be gradually reduced, have become more rigid. This is bad news for the quality of public spending and its role as a bargaining chip in political negotiations.

The activity of Parliament did not bring encouragement. Despite the weakness of the government’s program, Congressional initiatives for reform have been lacking. Even if the budgetary adjustment programs depend on the priority of the Executive, there have been times in the past when the contribution of Congress has been more important, as in the debate on VAT reform in 2019, laying the foundations for the approval of the subject in 2023. The same provision has not been observed, for example, in the debate on administrative reform and measures related to public security.

Worse still, there have been initiatives against fiscal adjustment, apparently aimed at measuring the strength of the executive. Examples of this would be the House’s approval of the use of the pre-salt Social Fund for a special funding line for the settlement and renegotiation of rural debts and the Senate’s approval of a special pension for community health and disease control workers.

The main mobilizations in Congress were those of personal interest, such as the amnesty of the participants in the acts of January 8 and the PEC of protection.

The STF has already moved forward on the path of demoralizing society. Criticisms from experts and the legal world are only growing, emphasizing the need to show restraint on the part of its members, particularly in individual or monocratic decisions (80% of them this year). The deterioration of its credibility has become a political issue which entails institutional risks.