Brazil's economy: Challenges for the new president

Brazil is the 10th largest economy in the world and the largest in Latin America. Its recent history can be divided into three main periods: one of economic stabilisation, which laid the foundations for economic growth; one of growth and reduction in inequality; and one of crisis, which has highlighted not only the country's strengths and potential but also its vulnerabilities. In 2018, after two years of economic crisis and several public corruption scandals, voters elected far-right Jair Bolsonaro to serve as president, marking a shift from years of left-wing governments. Bolsonaro, up for re-election in 2022, has generally pursued a free-market agenda, including an overhaul of the public pension system and privatisation of government assets. At the same time, he and his government have taken steps to tackle the two-fold challenges posed initially by the economic impact of the COVID-19 pandemic, and later by the global environment of high inflation and geopolitical insecurity following Russia's 2022 invasion of Ukraine. Recent estimates show that this approach has been partially effective – inflation and unemployment are falling, while gross domestic product has resumed its growth (albeit remaining low). However, many challenges remain, including high income inequality and a rise in poverty and food insecurity. Moreover, their complexity is compounded by the fact that the incoming government will have little fiscal space to address them, and that the recent rise in commodity prices, which has helped the country's economy, might not last. Relations between the EU and Brazil are multi-faceted: they work together in a number of sectors, and have strong trade relations. Nevertheless, the Bolsonaro government's position on deforestation in the Amazon rain forest has worsened Brazil's relationship with the EU, and could compromise ratification of the EU-Mercosur agreement.