On January 1, 2023, the four-year presidential mandate of Luis Inacio Lula da Silva began.

His government is made up of 37 ministries (14 more than the Bolsonaro government), listed below:

• Finances – Ministério da Fazenda: Fernando Haddad (PT)

• Casa Civil: Rui Costa (PT)

• Justice – Justiça e Segurança Pública: Flávio Dino (PSB)

• Defense – Defense: José Múcio Monteiro

• Foreign Affairs – Relações Exteriores: Mauro Vieira

• Planning – Planejamento e orçamento: Simone Tebet

• Culture: Margareth Menezes

• Institutional Relations – Relações Institucionais: Alexandre Padilha

• Racial Equality – Igualdade Racial: Anielle Franco

• Education – Education: Camilo Santana (PT)

• Women – Mulheres: Cida Gonçalves

• Management – Gestao: Esther Dweck

• Industry and Commerce: Geraldo Alckmin (PSB)

• Science and Technology – Ciencia e tecnologia: Luciana Santos (PCdoB)

• Work – Trabalho: Luiz Marinho (PT)

• Salute – Saude: Nisia Trindade

• Ports and airports – Portos e Aeroportos: Márcio França (PSB)

• General Secretariat – Secretaria Geral: Márcio Macêdo (PT)

• Human Rights – Direitos Humanos: Silvio Almeida

• AGU (Advocacy-Geral da União): Jorge Messias

• CGU (Controladoria-Geral da União): Vinícius Marques

• Institutional Security – Gabinete de Segurança Institucional: Marco Edson Gonçalves Dias

• Communications – Comunicações: Juscelino Filho (União Brasil)

• Integration and Regional Development – Integração e Desenvolvimento Regional: Waldez Góes (PDT)

• Energy – Minas and Energy: Alexandre Silveira (PSD)

• Sports – Esportes: Ana Moser

• Agriculture: Carlos Fávaro (PSD)

• Fishing: André de Paula (PSD)

• Cities – Cidades: Jader Filho (MDB)

• Tourism: Daniela Carneiro (União Brasil)

• Social Security – Previdência Social: Carlos Lupi, president of the PDT

• Indigenous peoples – Povos Indígenas: Sônia Guajajara (PSOL)

• Social Development – Desenvolvimento Social: Wellington Dias (PT)

• Environment and climate change – Meio Ambiente and Mudanças Climáticas: Marina Silva (Rede)

• Agricultural Development – Desenvolvimento agrario: Paulo Teixeira (PT)

• Social Communications Secretariat – Secretaria de Comunicação Social: Paulo Pimenta (PT)

The first acts of the new government were symbolically aimed at environmental areas and the revocation of laws on the possession of weapons, sectors in which Bolsonaro has intervened heavily in recent years. And there has been a first purge of officials indicated by Bolsonaro in key areas, about 1200 have already been sent home.

In the environmental field:

– Restart of the Amazonia Fund, frozen in Bolsonaro management, an environmental protection program financed by foreign countries (first of all Germany and Norway)

– Return of control and sanctioning power regarding environmental crimes by IBAMA (Instituto Brasileiro do Meio Ambiente), paralyzed during the management of the previous minister, Ricardo Salles

– Reconstitution of CONAMA (Conselho Nacional de Meio Ambiente), an institution that guarantees the participation of civil society in decisions concerning the environment.

On guns, Lula canceled by decree legislation that facilitated access to firearms and ammunition.

On the economic front there is still great uncertainty and concern regarding the economic policy of the new government. Although Minister Haddad, in his first official speech, reiterated that fiscal responsibility will be one of the cornerstones of the new government, the market is waiting for concrete signals. Lula called the “spending cap” (introduced during the Temer government) “stupid”, but has not yet indicated what kind of fiscal “anchor” will replace it.

Privatizations will certainly slow down and populist interventionism in state companies (Petrobras and Banco do Brasil above all) risks jeopardizing the solidity of these large companies (today very efficient thanks to the “Law of State Companies”, amended without discussion by Congress to favor the “market of ministries” in December).

Finally, Lula extended the fuel tax exemption, promulgated by Bolsonaro at the beginning of the energy crisis in April 2022, for 60 days. Minister Haddad had speculated that the exemption would not be extended, given that it causes a loss of tax revenue of 53 billion reais per year. But he was immediately denied by Lula, who has no intention of starting his mandate with an unpopular increase in the price of fuel.

Here is the trend of the main economic indicators:

 2017201820192020202120222023
GDP – real growth (%)1,3%1,8%1,4%-4,1%4,50%3,04%0,80%

The 2022 GDP outperformed the forecasts at the beginning of the year, which predicted stagnation (+0.36%). The post-Covid reopenings and the recovery in global demand for commodities have given a strong boost to the economy and employment.

In 2023, a slowdown in world economic growth is expected and for Brazil, forecasts speak of GDP growth of less than one percentage point.

Inflation and real/dollar exchange 

 2017201820192020202120222023
IPCA (IBGE – %)2,95%3,69%4,20%4,38%10,0%5,62%5,31%

Thanks to the timely increase in interest rates by the Banco Central at the end of 2021, inflation is coming back under control. For 2023, inflation is expected to still be above 5%, mainly due to uncertainty regarding the new government’s fiscal policy. An excessively expansionist policy could cause an increase in demand and therefore tensions on prices.

   2017201820192020202120222023
Exchange rate R$/US$
(end of the period)		3,253,754,015,195,575,255,27

The dollar is quoted today (January 4, 2023) at R$ 5.45, up from a month ago (R$ 5.28). The market is protecting itself from a possible fiscal imbalance resulting from the expansionist policy of the Lula government. From the point of view of the trade balance and current transactions, the inflow of hard money remains substantial, therefore – in the event that concrete signs of strong fiscal responsibility arrive from the government – a rapid revaluation of the real would be likely.

At the end of 2022, the rate of the dollar was R$ 5.25, well below the forecast made at the beginning of the year by economists (R$ 5.60). At this moment the forecast for the end of 2023 is an exchange rate of R$ 5.27.

The euro is quoted today at R$ 5.76, up sharply compared to a month ago (R$ 5.54) and above all two months ago (5.06). At the same time that the real depreciated against the dollar, the euro appreciated strongly against the US currency. The result was a maxi-devaluation of the real against the euro (14% in two months). However, it must be remembered that, a year ago, the euro was worth R$ 6.42 and that therefore, despite the recent devaluation, in 2022 the real appreciated by 10% against the European currency.

Interest rate

 2017201820192020202120222023
Nominal Interest rate
(end of the períod)		7,00%6,50%4,50%2,00%9,25%13,75%12,25%
Real interest (deflactor: IPCA)4,05%2,81%0,30%-2,38%-0,75%8,13%6,94%

The discount rate (SELIC) closed 2022 at +13.75%.

A slight decline in the SELIC is expected for the end of 2023, but only by 1.5%. Fiscal uncertainty and still high inflation do not allow for more substantial cuts for the time being.

So, the real interest rate (discounting inflation) is expected to remain at record levels again this year (around 7%).

The Brazilian stock exchange (Bovespa)

Another month of high volatility and losses for Brazilian equity assets.

Ibovespa closed the session of 3 January 2023 at 104,166 points, -4.8% compared to the close at the beginning of November (109,401 points on 5 December 2022). The decline in the period was -7.8% in dollars and -8.4% in euros.

The market is not welcoming Lula’s appointments in state-owned companies, the lack of definition of the mechanism that will replace the spending ceiling, the composition of the government’s economic team and the repeated declarations that seem to threaten Brazil’s fiscal balance.

Since Lula was elected, the Brazilian stock market has lost 10% and the real has depreciated by 6%.

Never before has the future been a great unknown.