Policy-Constrained Growth: Government spending and economic recovery in Brazil during Lula's third term

By Ricardo Summa, Guilherme Haluska and Franklin Serrano

Despite headwinds from higher interest rates in the US and at home, the Brazilian economy is nevertheless emerging from a period of prolonged stagnation. After growing an average of 0.2 percent a year between 2015 and 2022, national growth averaged 3.3 percent annually during 2023–2024, the first two years of President Lula’s third term. Though quite modest in comparison to the massive social needs of a developing country, this is still better than expected.1 Part of Brazil’s recent positive performance has been due to growing exports, to be sure. But the bulk of Brazil’s current economic growth stems from a cause the government itself has been reluctant to recognize: expansionary fiscal policy, which has generated sufficient demand to counteract these forces of contraction.

Read rest here.