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Brazil woke up on Monday with its election still undecided — but with a political landscape different from the one projected before voters went to the polls.
Flávio Bolsonaro finished the first round ahead of President Luiz Inácio Lula da Silva, with 47.03% of valid votes against 45.16%. As neither candidate secured more than 50%, Brazilians will return to the polls on 25 October to decide who will lead Latin America’s largest economy from 2027 onwards.
Bolsonaro’s result exceeded pre-election polling expectations and was accompanied by significant gains for the right in other races, increasing the importance of the country’s new political configuration for economic decisions in the years ahead.
For markets, however, the question beginning to emerge is not simply who will win the election. It is what the next government will do with the Brazilian economy.
The winner will inherit a country with some important advantages, but also with a problem that is difficult to ignore.
Brazil enters this electoral period with unemployment and inequality at lower levels, while high interest rates have supported the currency. At the same time, public debt exceeds 82% of GDP, interest rates remain high, and government forecasts point to economic growth of just 2% in 2026 and 2.3% in 2027.
It is precisely this combination of debt, public spending, interest rates and growth that is likely to sit at the centre of the economic debate during the run-off.
Lula and Bolsonaro present different visions of the role of the state and the pace of fiscal adjustment, but there is a question that cuts across both candidacies: Brazil’s debt trajectory will require politically difficult fiscal decisions after the election.
This means that, once the election is over, the winner’s first major test may not take place at the ballot box, but in their ability to convince investors, businesses and consumers that there is a sustainable economic plan.
For those watching Brazil from abroad, this matters considerably.
The country is one of the world’s largest emerging economies, a major producer and exporter of food, energy and raw materials, and an important destination for international capital. Changes in perceptions of the Brazilian economy can therefore quickly affect the real, equities, interest rates and foreign investment flows.
The first reaction is already beginning to emerge. Investors were preparing for gains in Brazilian assets following Bolsonaro’s stronger-than-expected performance, with overseas-listed Brazilian shares and exchange-traded funds rising before local markets opened. Reuters reported that investor optimism was linked in part to expectations of a more market-friendly economic agenda and greater fiscal discipline.
But there is an important nuance: an election does not automatically solve a country’s economic problems.
A Bolsonaro victory could initially raise expectations of fiscal adjustment, reforms and closer relations with the United States. A Lula victory would mean continuity of an agenda characterised by a greater role for the state and social policies, while placing even greater attention on how his government intends to control spending and stabilise public debt.
And even this distinction is not as simple as it may appear. Investors and analysts have warned that, despite ideological differences between the candidates, Brazil’s fiscal challenges will ultimately depend on the measures implemented after the election. Even market participants reacting positively to Bolsonaro’s first-round result have cautioned that it remains to be seen whether he would ultimately prove more fiscally responsible.
That is why perhaps the most important variable for international markets will not simply be left or right.
It will be credibility.
Credibility to control public debt. To create the conditions for lower interest rates. To provide regulatory predictability. To preserve institutions. And to define Brazil’s position in a world increasingly shaped by competition between the United States, China and other major economic powers.
The run-off will decide the president. But the decisions taken afterwards will determine whether Brazil can transform the international attention it is receiving today into investment, growth and long-term confidence.
After the election, what will be the next president’s greatest challenge: making the economy grow, or convincing the world that this growth can be sustainable?
