A marked change of course in policy seems unlikely under Dilma. Though the president has claimed she will address macroeconomic concerns, we have heard these promises before without seeing matching policy action. The more likely outcome, in our view, is that Dilma changes course only under extreme market duress. Policy may improve slightly at the margin, but by less than is needed, or would have been delivered by opposition candidate Aecio Neves. Dilma has, for example, ruled out greater autonomy for Brazil’s central bank.
We were of the opinion that growth next year would be weak whoever won – reforms take time and can be painful – and so the election result prompts no change to our 2015 forecast. The longer term outlook, however, is gloomier. The only immediate positive from Sunday is an end to uncertainty and volatility; the market knows now to expect more of the same, however bad it may be.