Eurasia Group | Top Risks 2023: Implications for Brazil

Implications for Brazil

Eurasia Group's Top Risks of 2023
Top Risks is Eurasia Group's annual forecast of the political risks that are most likely to play out over the course of the year. This year's report was published on 3 January 2023.

As President Luiz Inacio Lula da Silva starts his third term in office, there is a strong case to be made that the global environment will be an important factor in determining his success. Brazil is different from 20 years ago, when Lula first became president. It now has a more indebted government (as measured by the public debt-to-GDP ratio), an older population, more impatient voters, and a deeply polarized political environment. Consequently, Lula has limited room for maneuver, especially as his administration seeks to ramp up public spending.

Eurasia Group's Top Risks 2023 report highlights important risks and opportunities that could be decisive for the fate of the new administration in the Southern Hemisphere's largest democracy. Brazil is not the focus of any of this year's top ten global risks, but it is strongly affected by several of them. Risk #4, Inflation shockwaves, suggests that tight global financial conditions will present an important challenge for Lula's administration, leaving little room for fiscal irresponsibility. (High inflation was also a key factor in Jair Bolsonaro's failed reelection bid in 2022.) Other themes from Top Risks 2023 such as the Russia-Ukraine conflict, China's more unpredictable policymaking, and new disruptive technologies could also bring important headwinds for the new administration and long-term changes that reinforce political divisions in the country.

Yet Brazil could be better positioned than many emerging market countries to take advantage of opportunities presented by the geopolitical trends of 2023. Energy prices should be high, along with those of agricultural products. Brazil benefits by being a producer of both. A challenging geopolitical landscape also suggests that the trend of friendshoring and nearshoring should continue, which could create opportunities for Brazil, depending on the Lula administration's policy mix.

Here are some of the key takeaways for Brazil. For the full list of top 10 global risks this year, please see Eurasia Group's Top Risks of 2023.