Brazil's economy,shifting political landscape

After a torrid couple of years, Brazil's battered economy is expected to confirm signs of recovery this week, shifting the ground under the already unpredictable 2018 general elections.

On Thursday, the IGBE state statistics office will release October unemployment figures. Go Associados consultants expect the seventh monthly fall to 12.1 percent, down from a record high 13.7 percent in the first quarter of this year.

Then on Friday, the IBGE will announce GDP numbers for the third quarter. A Bloomberg survey of 31 economists predicts 0.3 percent growth over the previous quarter, the third consecutive quarterly increase in output.

This would put some meat on the recovery from Brazil's worst recession in history which saw GDP shrink 3.5 percent in 2015 and 3.6 percent in 2016.

It also injects an intriguing new element into the run-up to the October 2018 presidential and legislative elections.

So far, polls have been dominated by leftwinger Luiz Inacio Lula da Silva, a two-term ex-president who has been convicted of corruption. Some way behind him in second place is rightwing firebrand and former army officer Jair Bolsonaro.

The mood is firmly anti-establishment. But if the economy recovers enough, analysts say, voters might be less keen to go for radical options.

They might instead put their faith in more centrist candidates espousing a continuation of market reforms pushed by the unpopular current leader Michel Temer.

Carlos Langoni, a former Central Bank chairman, says the strength of the recovery remains uncertain, but it's already sure "there is no risk of slipping back" into recession.

That plus the potential for joblessness falling below the psychologically important barrier of 10 percent could be "critical on the eve of the electoral process."

A better economy "would be a major argument" for the currently weak centrist candidates and those tied to Temer's attempts at pension reform and other austerity measures.

- Pragmatic Brazilians? -

For sure, Brazilians are a long way right now from embracing the Temer agenda. He's the most unpopular president on record and his centerpiece policy of scaling back pensions is floundering in Congress.

Besides, a corruption scandal has tainted much of the political elite -- Temer himself being twice charged with crimes -- making a revolt at the polls more likely.

But Brazilians are not necessarily in an ideological mood and may be persuaded to vote on their pocketbooks, says Langoni, who is now at the Getulio Vargas Foundation in Rio de Janeiro.

Brazilian Finance Minister Henrique Meirelles is favored by markets but polls weakly among ordinary Brazilians 

"I believe in the Brazilian electorate's pragmatism. The middle class is concerned about the cost of living and jobs," he said. "The economic factor will weigh heavily on this election."

Possible center-right candidates such as Sao Paulo Mayor Joao Doria or Sao Paulo state Governor Geraldo Alckmin are polling weakly against Lula and Bolsonaro so far, but they would be helped by a stronger economy.

Economy Minister Henrique Meirelles is seen by the markets as a strong figure to take up the role of pro-reform candidate, although opinion polls put him at the far back of the pack so far.

Even the widely hated Temer could end up gaining influence over the choice of his successor. "He will be strengthened" if he gets his pension reform through, said Murilo Aragao at the consultancy Arco Advise.

The market consensus is for GDP to grow 0.73 percent this year and 2.58 percent in 2018, a more optimistic outlook than the previous survey in the Central Bank's Focus magazine of 2.5 percent growth.

In the first quarter of this year, positive GDP was led by the huge agriculture sector and in the second quarter by services. This week should see growth led for the third quarter by family consumption, thanks to rapidly falling inflation, Langoni says