MercoPress. South Atlantic News Agency

High inflation and unemployment challenging Brazilian economy in election year

Dilma, Neves and Campos, are the main contenders for October's presidential election

With the World Cup just eight days away, high inflation and unemployment is once again challenging Brazil’s economy, with the impact sure to influence this year’s election campaigns. Investors warned earlier this week that spending promises will undermine the fiscal discipline needed to restore confidence in the country and boost economic growth.

President Dilma Rousseff this month boosted cash transfers to the poor and pledged to continue raising the minimum wage. Back in April, the president, of the ruling Workers’ Party (PT) said she will also increase income tax exemptions in 2015

Senator Aecio Neves meanwhile, seems to be pledging much the same. The senator from the Brazilian Social Democratic Party (PSDB), currently trailing in second spot in the polls, last month distanced himself from earlier talk of unpopular austerity measures and urged Congress to extend minimum wage increases by at least the rate of inflation through to 2019.

Analysts from credit rating firms to the World Bank agree Brazil needs to cut spending to help bring inflation under control, boost investments and thereby quicken growth.

With a total tax burden already at 36% of GDP, a widening budget deficit, and more than 80% of central government outlays earmarked by law, Brazil has little room for fiscal maneuvers.

GDP growth in the first quarter slowed by half to 0.2% from the previous three months, as investments fell by the most in two years, the government said last week. Only Argentina and Venezuela will expand less than Brazil among the major Latin American economies this year, according to the latest IMF forecast.

At the same time, unemployment rose to 7.1% in the first quarter of the year, a 0.9 percentage point drop on 2013’s first quarter, according to the Brazilian Institute of Geography and Statistics (IBGE). A total of 91.2 million people are employed according to the report, a figure 0.65% lower than 2013 last quarter.

Eduardo Giannetti, an economic adviser to presidential candidate Eduardo Campos, of the Brazilian Socialist Party (PSB), said Brazil needs to rein in spending and increase interest rates at the outset of the next government to help ease inflationary pressure.

Campos, former governor of Pernambuco state, has already pledged to reduce the number of government ministries.

“With a credibility shock, with confidence restored, the Brazilian economy has already shown and will show again that it quickly returns to the right path,” Giannetti argued.

Under Rousseff’s leadership, Brazilian citizens have become increasingly unhappy with the direction the economy is taking. A survey by Pew Research Centre, revealed that for the first time since 2010, a majority of respondents said the economy was in bad shape. Dissatisfaction “with things in Brazil today” — a vague phrase seemingly meant to refer to the economy, country’s political leaders and the standard of living — rose to 72% from 55% a year earlier, according to the poll.

The president’s popularity has also taken a sharp nose-dive for the worse. Just 48% of those surveyed by Pew said she was a good influence on the country, compare to 84% for her presidential predecessor, Lula da Silva.

The good news for Rousseff however, is that her opponents seem to be tarnished with the same brush. They too are experiencing low popularity figures and — even worse for presidential candidates — a lack of name recognition.