Lula will have 18 months to balance the books under market pressure

Lula's fourth term begins in January 2027 with a problem that the market has already taken into account: public accounts. According to Gazeta do Povo, the market reacted to the re-election with a rise in the dollar and a historic drop in the Stock Exchange, which indicates that investors are closely following the fiscal issue.

The starting numbers are heavy. According to Gazeta do Povo, around 90% of the 2027 Budget is already blocked by mandatory expenses, and the country has recorded almost uninterrupted deficits since 2014. Public debt is around 83% of GDP, with a projection of exceeding 100% if spending does not change. Almost half of this debt is adjusted by the Selic, which makes the financial cost sensitive to the Central Bank's decisions.

In the debate, Gazeta do Povo lists measures under discussion: review of the indexation of the minimum wage, reform of health and education floors, limits on tax amendments and changes in pensions and assistance benefits. The same publication recalls that each real increase in the minimum wage increases the Union's expenses by hundreds of millions of reais, which helps to explain why the topic is so sensitive.

The schedule is tight. According to Gazeta do Povo, the political window is estimated at 18 months, from January 2027 to mid-2028, before the 2028 municipal elections. Within this period, the publication highlights the risk of fiscal dominance if the decoupling PECs are not sent in the first few months. In simple terms, fiscal policy would limit the actions of the Central Bank.

Bloomberg Línea reports that a report by BTG Pactual, released on Monday, the 26th, states that the choice of who controls the economy defines how far the stock market can fall. The same report describes that, without credible names and fiscal measures, long interest rates rise, the real loses value and the BC has less room to cut the Selic rate.

In the bank's toughest scenario, the Ibovespa would reach around 170 thousand points, without Petrobras (PETR4) and Vale (VALE3), with the price-to-earnings indicator around one standard deviation below the historical average. Also according to Bloomberg Línea, the real could lose between 10% and 15% in value, and the loss measured in dollars would reach around 30%. These are scenario projections, not guarantees of results.

What changes for the investor

For those who invest in the stock market, interest rates and the dollar, the central point is the market's sensitivity to the fiscal agenda in the coming months. If the government signals credible measures, reading the report suggests less pressure on long interest rates and the exchange rate. Without these signs, the picture described by Bloomberg Línea is one of higher long interest rates, a weaker real and less room for the Selic to fall. The news does not deal with Nasdaq directly, but the variation in the dollar affects those who invest in assets abroad. It is worth monitoring the calendar of tax proposals, the evolution of debt and the behavior of long interest rates.

Automatically translated from Portuguese.