Brazil Elections 2026: Round 2 - Lula’s present to a possible future with Bolsonaro- what is likely to occur?
Key takeaways
Brazil’s first presidential election round has triggered a systemic shock, putting conservative Flávio Bolsonaro in the lead and accelerating a potential pro-market “Blue Wave” in Latin America.
Brazil’s dependence on exports to China makes formal withdrawal from BRICS highly unlikely, potentially pushing a right-wing government towards weakening the bloc from within and realigning with Washington.
The transition highlights a deep regulatory divide between Lula’s statist approach and ESG protection, and Bolsonaro’s focus on fiscal discipline, privatisation, and tighter domestic security.
To mitigate operational risks, global companies must hedge against Real volatility, map supply chains to ensure compliance with the EU’s EUDR, and plan logistics to prevent port bottlenecks.
Brazil at a crossroads
Latin America’s macroeconomic and regulatory landscape has been shaken by the first round of Brazil’s presidential election, held on Sunday 04 October 2026. On this occasion, right-wing candidate Flávio Bolsonaro (Liberal Party, PL) finished in the lead with 47.03% of the vote, ahead of incumbent President Luiz Inácio Lula da Silva (Workers’ Party, PT), who remained anchored at 45.16%. This shift moves the political axis of South America’s largest country ahead of the decisive run-off on 25 October 2026. This is not an isolated development: the PL’s performance, combined with its securing of a majority in Congress, appears to accelerate the consolidation of a conservative “Blue Wave” across the subcontinent, mirroring Javier Milei’s pro-market shift in Argentina.
Will Bolsonaro remove the “B” from BRICS?
In the current geopolitical landscape, in which competing superpowers present highly polarised perspectives, a potential rightward shift in Brazil would have systemic consequences at the international level. With the aim of loosening Mercosur constraints, Flávio Bolsonaro’s government programme proposes to resume Brazil’s accession process to the OECD (Organisation for Economic Co-operation and Development), a dossier historically frozen by the Lula administration. However, a crucial issue remains the country’s stance towards BRICS. The experience of Flávio’s father, Jair Bolsonaro, in government highlights how important BRICS are to the country, including for leaders seeking closer ties with the US. Bilateral trade between Brasilia and Beijing has indeed reached a record US$171 billion in 2025, with Asian demand focused primarily on oil, minerals, and agricultural commodities — a figure that doubles Brazil’s total trade with Washington. This structural dependence on exports effectively makes Brazil’s formal withdrawal from BRICS highly unlikely. A potential Bolsonaro presidency could implement a strategy of “internal sabotage”, by halting expansion and blocking de-dollarisation plans to align with Washington, while maintaining commodity trade flows.
Comparing economic models
Brazil’s potential political transition points to a profound reconfiguration of the business environment, shifting the macroeconomic focus from a state-led approach towards deregulation and pro-market dynamics. Lula’s third presidential term has been marked by strong state interventionism, with a halt to privatisation in favour of large state-owned enterprises and public banks used to drive the national economy. In practice, this is evident in the role of Banco Nacional de Desenvolvimento Econômico e Social (BNDES), which acts as the main provider of subsidised credit for local businesses and strategic infrastructure projects. This includes assisting the federal government in structuring concession contracts for the federal highway network, particularly in Tocantins, Pará, Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, and Alagoas. However, this strategy has also affected major companies such as Petrobras, Brazil’s oil company, and Vale, one of the world’s largest mining and logistics companies, raising concerns about slower investment and economic growth. The state’s presence is also evident in two other areas. First, extensive redistribution policies aim to combat hunger and extreme inequality, notably through Bolsa Família, which supports families with a monthly per capita income below R$218. Second, labour market interventions include real increases in the minimum wage, greater social support and the recent approval of a constitutional amendment to reduce the working week to a maximum of 40 hours.
The PL candidate’s economic agenda covers several areas but focuses on two main objectives: reducing the state’s burden on businesses and cutting public spending. Based on fiscal discipline, this approach openly draws inspiration from President Milei’s policies in Argentina. Bolsonaro advocates reviving the National Privatisation Programme (PND) for major state-owned enterprises and strengthening the 2016 State-Owned Enterprises Law to prevent their political use. Alongside setting a public debt ceiling of 65% of GDP, the plan would control discretionary spending across the three branches of government: the Executive, Legislative and Judicial. Public administration reforms would also include abolishing at least 10 ministries, following de la Espriella’s current model in Colombia, reducing politically appointed positions and operating costs, and tackling excessive public-sector salaries.
Looking at policy scenarios
Beyond the macroeconomic landscape, the political transition outlines new sectoral policy scenarios. These combine environmental and technological considerations with logistical and financial variables, structured around four strategic pillars.
Environmental, social and governance (ESG): These criteria occupy a central position in the electoral debate, highlighting the clear divide between the two political camps. When Lula returned to office in 2023, his government reinstated several initiatives, including satellite monitoring, with tangible results. Official data show that deforestation in the Legal Amazon fell to 5,731 km² in 2025, down from 6,518 km² the previous year, a 12.07% decrease. This confirms the PT leader’s progress towards eliminating deforestation entirely by 2030, an ecological transition closely linked to social protection, as demonstrated by the creation of the first-ever Ministry of Indigenous Peoples. Conversely, a right-wing victory would redefine the country’s climate priorities. The opposition’s programme limits its commitment to eliminating illegal deforestation by 2029, a less stringent target than Lula’s. This approach risks weakening environmental protection to favour agricultural production and the domestic economy, potentially exposing Brazil’s fragile ecosystems to renewed pressure.
Technology policy: The future of high-tech value chains and advanced manufacturing represents a major point of divergence between the two political models. On 20 August 2026, Lula’s government announced investments of approximately R$2.3 billion (US$444.2 million) to strengthen its artificial intelligence ecosystem, dividing projects between US and Chinese companies, highlighting its efforts to navigate relations with both powers. This approach also extends to broader technological partnerships, through which Lula has sought to maintain strategic autonomy and active non-alignment. A potential shift towards the pro-market right could disrupt this balance, pursuing closer strategic and regulatory alignment with Washington.
Domestic security and criminal organisations: To counter the impact of criminal organisations, including on international trade flows, the political transition introduces a significant divergence in approaches to public order and the protection of export hubs. During a meeting at the White House, the conservative presidential candidate asked US President Donald Trump to designate two Brazilian groups, Comando Vermelho (CV) and Primeiro Comando da Capital (PCC), as terrorist organisations. His approach involves a permanent tightening of controls, including plans to join the Shield of the Americas, Trump’s security alliance for the Americas. This stands in clear contrast to Lula’s approach, which favours combining financial intelligence to tackle money laundering with temporary emergency decrees, deploying law enforcement only during acute crises.
Digital currency (DREX): DREX, the digital currency issued by the Banco Central do Brasil, represents a virtual version of the Real. Although the initiative was formally launched in 2020 under Roberto Campos Neto, the former Central Bank president appointed by right-wing leader Jair Bolsonaro, perceptions of it have since diverged sharply between the two political camps. While Lula’s administration supports DREX as part of the country’s financial modernisation and inclusion plans, the right-wing opposition has turned it into an ideological battleground. Bolsonaro-aligned figures, including Santa Catarina deputy Júlia Zanatta (PL-SC), warn that the federal government could use it as a tool for fiscal control. The right associates DREX with China’s digital yuan, warning of potential “mass surveillance”, geographical restrictions on payments, arbitrary government freezes on current accounts and, ultimately, a drastic reduction in individual financial freedoms.
Risk scenarios and mitigation measures
As a direct consequence of the macroeconomic, regulatory, and security variables analysed above, businesses face a scenario requiring immediate measures to mitigate operational risk in the country.
Electoral uncertainty, combined with a fragile economy (public debt at 82% of GDP), is causing fluctuations in the Real. Companies are therefore advised to use currency hedging to lock in exchange rates and protect the value of business contracts.
Potentially weaker environmental protections require multinationals to map suppliers of commodities sourced from Brazilian states to avoid violating the EU Deforestation Regulation (EUDR), which prohibits imports of raw materials derived from areas deforested after 2020. Under a right-wing government, Brazilian agricultural suppliers could become more competitive domestically but risk lacking the geolocation traceability required by the EU. Non-compliance could split supply chains, diverting Brazilian commodities towards Asia, while forcing global companies sourcing from Brazil to adopt green-shoring strategies. This would increase the costs of segregating and tracing supply chains destined for Europe.
Closer technological alignment with Washington could create opportunities in certain electronics and advanced manufacturing segments, while supporting Brazil’s integration into nearshoring corridors encouraged by major US federal subsidies. Multinationals reorganising supply chains away from Asia could select Brazilian facilities, such as the Manaus industrial hub, for intermediate electronics assembly. However, this scenario depends on Brazil’s structural competitiveness and local incentives.
Logistically, companies may need to revise their port transport plans to account for potential bottlenecks and delays caused by stricter inspection and customs protocols at key ports. This applies, for example, to the port of Paranaguá and Santos, the latter of which is used to ship 60% of the cocaine trafficked to Europe.
The future of DREX remains a regulatory variable to monitor, particularly for financial operators and businesses managing cross-border payments and treasury operations.
