Jair Bolsonaro won the presidency in a runoff vote in October, signaling a shift to the far right. He inherits an economy hobbled by low growth and high debt.

Jair Bolsonaro, the right-wing populist, won the second-round presidential runoff vote by a healthy margin in October. The president-elect and his party, together with various allies, did well in various Congressional and gubernatorial races. Asset markets had rallied in the weeks leading up to the runoff vote on bets that a Bolsonaro win was low. But markets rose after the results on expectations Bolsonaro may actually do some good.

His inheritance is difficult. Bolsonaro is a divisive figure. While he has core support in Congress, he is short of a majority. Congress remains very fragmented. There are 30 parties in the new Lower House, up from 25, and 21 parties in the new Senate, up from 16. While there’s clearly a popular mood in favor of change, and a rejection of the old order, a lot of the demand for change is for better public services. It will be difficult to manage these social and political pressures. Bolsanaro has tried to shore up his reformist credentials by appointing a key figure in the investigation of the “Car Wash” corruption scandal as the new Justice Minister. The scandal started in March 2014 as an investigation into allegations that executives at the state oil company, Petrobras, had accepted bribes from construction firms in return for awarding them contracts at inflated prices. The scandal then spread and engulfed dozens of politicians, including popular former president Luiz Inacio Lula da Silva.

Economic agenda remains a mystery

Brazil has been underperforming for years. Growth was held back by microeconomic inefficiencies and high taxes, and by macroeconomic imbalances, especially high and steadily rising pension spending that limits fiscal flexibility. The political climate by the end of Lula’s presidency, and throughout the terms of former president Dilma Rousseff and her successor, Michel Temer, made it impossible to do anything short of temporary fiscal patches. Growth has been slow since the recessions of 2015 and 2016.

We know little of the new president’s economic agenda since the campaign did not focus on policies. The issue is less likely to be whether policy intentions are sensible, and more whether the political environment allows sensible policy measures to be implemented. There’s a big fiscal and domestic debt problem, and there isn’t a whole lot of time to tackle this challenge. The good news is that Brazil’s capacity to provide a financial shock to the rest of the world, if things go badly, is limited. Its external debt is not large, the debt service profile is not demanding, and the balance of payments looks strong. Brazil has a trade surplus, modest current account deficit and international reserves, and robust foreign direct inflows.

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Global economic growth remains vulnerable in the face of escalating trade tensions, higher interest rates, and volatility among emerging markets.