With the economy advancing at a quarter of the pace she targeted shortly after taking office, her administration has enacted more than two stimulus measures a month in the past year. If the world’s biggest emerging market after China doesn’t rebound soon, Rousseff, 65, may face an electoral battle even though she currently enjoys a record approval rating.
The flagging economy threatens her prospects and has prompted the biggest opposition party to name its likely candidate, said Andre Cesar, director at consulting firm Prospectiva. Gross domestic product grew in the first half of Rousseff’s term at an average annual rate of 1.87 percent, the slowest two-year pace since 1998-99.
“A poor economic performance could erode her support,” Cesar, who forecast Rousseff’s 2010 election victory when she still trailed in polls, said in a telephone interview from Brasilia on Jan. 7. “Not only voters but her allies too will be closely watching the economy. Less than 3 percent growth this year puts her re-election at risk.”
Analysts surveyed by the central bank trimmed their 2013 outlook in 9 of the past 10 weeks to 3.19 percent growth from 4 percent in November, according to the central bank.
While Rousseff said on Dec. 27 that she would not discuss the presidential race, Vice President Michel Temer said on Oct. 16 the two will again run on the same ticket in 2014. Rousseff’s press office declined to comment for this story.
When Rousseff took office on Jan. 1, 2011, her ruling Workers’ Party was riding high. Brazil posted economic growth of 7.5 percent in 2010, and Rousseff’s predecessor and mentor, President Luiz Inacio Lula da Silva, ended eight years in power with an unprecedented approval rating of 87 percent. During his term, nearly 40 million Brazilians were lifted out of poverty.
Rousseff, who was Lula’s cabinet chief, two months into her term said she would seek growth of 4.5 percent to 5 percent in coming years.
Instead, growth slowed to 2.7 percent in 2011 and to 1 percent last year, the central bank estimates, as commodity prices slumped and an overvalued currency caused manufacturers to lose market share to foreign competitors. Meanwhile, inflation, which reached 5.84 percent in 2012, has exceeded the 4.5 percent midpoint of the central bank’s target range for three straight years.
Since Rousseff took office, Sao Paulo’s Bovespa stock index fell 27.3 percent in U.S. dollars terms, compared with a gain of 14.1 percent in Mexico’s IPC index. The real was the worst performer after South Africa’s rand among the 16 most traded currencies tracked by Bloomberg, losing 18.6 percent over the same period.
Brazil’s global bonds returned 27 percent since Jan. 1, 2011, compared with 28.4 percent for all emerging market bonds, according to JP Morgan.
In an attempt to revive growth, Rousseff’s government reduced borrowing costs to a record, cut taxes for industry and consumers, pushed banks to lower lending rates and took measures to boost exports by weakening the real.
Yet with results from the stimulus proving slow to materialize, concern is rising in government quarters. A close adviser to Rousseff, who asked not be named because he was not authorized to make public statements, said a recovery in 2013 is crucial to assure her popularity. Opposition parties sense their chance to gain ground.
“The meager growth has unveiled a host of economic problems the government has not addressed,” Rodrigo de Castro, secretary-general of the Brazilian Social Democracy Party, or PSDB, said by telephone on Jan. 3. “This is the biggest opportunity for the opposition in a decade.”
The PSDB’s presidential candidate has either won or been runner-up in every election since 1994. Its leaders on Dec. 3 proposed Aecio Neves, a senator from Minas Gerais and former governor of that state, as their next presidential candidate.
Neves attacked Rousseff’s administration in a Jan. 15 article on the editorial pages of Rio de Janeiro-based O Globo newspaper.
“The government continues to suffer from a disease that invariably causes severe damage to society: it spends too much and it spends badly,” he wrote.
In a Datafolha survey that asked voters about various electoral scenarios in 2014, Rousseff had a commanding lead: 57 percent support to 18 percent for former Environment Minister Marina Silva and 12 percent for Neves. The survey of 2,588 prospective voters on Dec. 13 had a margin of error of two percentage points. Silva, then representing Brazil’s Green Party, ran third in the 2010 vote.
Still, Rousseff’s own political history indicates how volatile voter sentiment can be. A Datafolha survey taken 19 months before the 2010 election showed her with 13 percent support to 47 percent for the PSDB’s Jose Serra, whom she eventually defeated by 12 percentage points.
Brazil’s slow third-quarter growth also fueled ambitions within Rousseff’s coalition. Members of the Brazilian Socialist Party speculate Pernambuco Governor Eduardo Campos, one of the organization’s leading figures, could run against her, Prospectiva’s Cesar said. Campos didn’t reply to e-mails and phone calls from Bloomberg seeking comment.
“GDP is an important variable, but not the only one and certainly not the most important for Brazilian families,” Arlindo Chinaglia, a Workers’ Party deputy and leader of the government coalition in the lower house, said by telephone from Brasilia on Jan. 9. “We don’t fear the opposition because of our achievements. Over the last decade we’ve had the biggest redistribution of income in Brazilian history.”
Last September, in announcing new regulations intended to cut electricity costs by 20 percent, Rousseff said that lower lending costs, a more favorable exchange rate, and spending on infrastructure and education are making Brazil more competitive.
Her efforts have not assuaged critics who say the government is clinging to an economic model based on spurring consumption by expanding credit and spending, rather than boosting investment by paring red tape and simplifying taxes.
“The basic roadblocks are on the supply side of the economy,” Paulo Vieira da Cunha, a partner at Tandem Global Partners LLC and a former Brazilian central bank director, said by telephone from New York on Jan. 4.
Such concerns haven’t as yet resonated with the public. Rousseff’s approval rating stood at 78 percent in the latest Ibope poll, which surveyed 2,002 people from Dec. 6-9 and had a margin of error of two percentage points. That’s the highest level ever for a Brazilian president after two years in office. One reason is that slower growth hasn’t boosted unemployment, which stood at 4.9 percent in November, a record low for the month.
The jobless rate may finally rise, threatening what would have been Rousseff’s easy path to re-election, if the government doesn’t steer away from its demand-led model and lure more investment, said Albert Fishlow, former director of Columbia University’s Institute of Latin American Studies, in a telephone interview from New York on Dec. 20.
Inflation has accelerated for four consecutive months and, if not checked by tighter monetary policy this year, could erode her re-election chances in 2014, said John Welch, a strategist at CIBC World Markets in Toronto.
“Rising prices are the worst thing she could hope for in an election year,” said Welch. “The time to tame inflation is now.”
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