Brazil & Southern Cone - September 2026

Given Brazil’s headline economic indicators, President Luiz Inácio Lula da Silva should be heading into the October presidential election with considerable tailwinds. GDP growth has remained resilient during his four-year term, inflation has slowed in mid-2026, credit is becoming cheaper, and unemployment has plummeted from the 8.4% rate registered at the start of his current term. And yet there is little feel-good effect about the economy as the former trade union leader, who turns 81 this year, prepares to run for a fourth term in office.

In an opinion survey released by pollster BTG/Nexus on 31 August, 53% of respondents considered Brazil’s economic situation to be ‘bad’ or ‘terrible’, and only 17% considered it ‘good’ or ‘excellent’. Around 45% of those questioned considered the economy to be worse now than under Lula’s predecessor, former president Jair Bolsonaro (2019-2023), while 39% said the economy had improved. According to the poll released by Quaest in early September, over two thirds of respondents said they felt like their purchasing power had fallen compared to a year earlier. 

To make matters worse, much of what Lula has done in the economy, barring some historic reforms such as the long-overdue tax overhaul, has been achieved on ‘credit’, that is with borrowed money. During his four-year term, Lula has consistently spent more than the government had available. According to official data from the central bank (BCB), Brazil’s public sector registered an annual nominal deficit equivalent to 9.34% of GDP in the 12 months through July 2026. Meanwhile, Brazil’s net public debt stood at 69.1% of GDP in July.

Looking ahead, Lula is broadly offering continuity of his current economic policies, which have focused heavily on government spending. During an interview in August on Globo TV, Lula said that he was not worried about the country’s debt level and indicated that he would continue with his state-led economic development model, suggesting that stronger economic growth would raise revenue and balance the books.

Indeed, the economic proposals for President Lula’s re-election campaign focus on maintaining the current fiscal framework, boosting the minimum wage, expanding public investment in infrastructure, and promoting reindustrialisation. He plans to continue large-scale programmes, such as the government’s infrastructure investment initiative known as the Programa de Aceleração do Crescimento (PAC), and to increase the resources allocated to the investment budget for public works, housing, and the energy transition. Public banks and companies would be key drivers of growth.

A new Lula term would likely see continued real increases in the minimum wage as well as stronger labour protection and credit-incentive programmes. A key pledge regarding labour rights that Lula has trumpeted throughout 2026 has been the end of the so-called escala 6x1, the norm of working six days a week [EB-26-03]. However, at the time of writing, the government-backed legislation that proposes reducing the maximum working week from 44 to 40 hours remains stalled in congress.  

His campaign rhetoric also makes frequent mention of sustainable development, with an emphasis on supporting renewable energy projects and biofuel production, but he also supports new oil exploration. Lula also highlights Brazil’s opportunities for growth in areas such as the extraction and processing of critical minerals, although his mentions of critical minerals are often accompanied by comments about how Brazil should not simply export its raw materials for processing abroad but should process more of them domestically to support industrial production and increase output of higher-value goods [EB-26-06].

By contrast, Lula’s main rival in the October election, Senator Flávio Bolsonaro, the eldest son of former president Bolsonaro, proposes radically different economic policies which are more in line with the pro-business, free-market approach that characterised his father’s administration. His pledges include reducing the size and cost of the state leading to less spending and lower taxes. During his first official campaign rally on 16 August, Bolsonaro said: “I’m going to get the books in order and pull Brazil out of the red. You’ll be free of debt. I’m going to wield the axe starting next January. There will be cuts to taxes, bureaucracy, and corruption.”

An economic adviser to the Bolsonaro campaign, Daniella Marques, has suggested that, if elected, Bolsonaro would aim for initial spending cuts equivalent to around 1.5% of GDP. He would also dissolve at least 10 of the current 39 federal government ministries, as well as cut administrative and operational costs. Bolsonaro has also signalled he would cut excessive public sector salaries and perks and drastically reduce the number of political appointees. Other pledges include large tax cuts to boost purchasing power and lower the cost of food and consumer goods, as well as plans to cut red tape and streamline business formation, registration, and licensing.

Regarding labour rights, Bolsonaro has previously criticised the legislation supported by the government to reduce the working week and proposed that workers choose their own working hours, enabling contracts with flexible days and hours. In late August, Bolsonaro said during an interview on the TV channel Record: “We will defend the freedom of you, the worker, to choose what your work schedule will be, which is a much better alternative proposal than what the current government is proposing…It’s about freedom. You will have your labour rights guaranteed…but you will work as many hours as you want.”

Not surprisingly, markets and investors are more aligned with the Flávio Bolsonaro camp’s economic proposals than with Lula’s. As in previous elections, financial markets have tended to move inversely to Lula’s chances of victory, with equity and currency markets rallying as Lula falls in the polls. That is exactly what happened after the 2 September Genial/Quaest poll, which showed Lula’s lead over Bolsonaro in a projected second-round vote narrowing to only one percentage point, down from an eight-point lead in July. The real that day strengthened to a three-week high against the US dollar, and the index of the São Paulo stock exchange (Ibovespa) jumped 3% in response.

Slower quarterly growth

The national statistics institute (Ibge) released figures on 1 September showing a quarterly GDP growth rate of 0.5% for the second quarter of this year. This marks a slowdown compared with the 1.1% quarterly growth in Q1 this year. In year-on-year terms, growth was 2.0% in the second quarter of 2026, and accumulated growth for the four quarters through Q2 2026 stood at 1.9%. Private-sector economists surveyed by the central bank (BCB) are not expecting Brazil’s economy to post high growth rates in the coming years. As of early September, market analysts forecast growth of around 1.9% for 2026 and 1.5% for 2027.

Critical minerals bill

The senate approved a bill on 2 September to create a national critical minerals strategy, which will include new regulatory mechanisms as well as government investment and tax incentives for the sector. Having cleared the lower house in May, the bill proposes the creation of a mining guarantee fund to support critical mineral projects. The legislation also establishes a national critical minerals council to regulate the sector. The council will comprise representatives from federal and local authorities as well as the private sector.

Third way option

While the election remains highly polarised between the Lula and Bolsonaro camps, various polling firms released survey results in late August and early September which showed a potential ‘third way’ candidate rising in opinion polls – Augusto Cury, a psychiatrist and best-selling author of self-help books. In a Quaest poll in early September, Cury polled at 10% in a projected first-round vote. Other candidates that polls have indicated are vying for the third-place position include Ronaldo Caiado, of the big-tent party Partido Social Democrático (PSD); Romeu Zema, of the right-wing Novo party; and Renan Santos, of the right-wing Missão party. Rather than positioning himself as a right-wing figure and seeking votes from Bolsonaro’s support base, Cury has adopted a more centrist stance. He is affiliated with the Avante party, a pragmatic, centrist group formerly called the Partido Trabalhista do Brasil (PTdoB) that has supported governments on either side of the political spectrum in the past. Saying he has “a capitalist mind and a social heart”, Cury has managed to tap into voter fatigue with the country’s political polarisation by preaching reconciliation.