Polarized Politics Fueling Spending Spree: Expert Warns of Fiscal Pressure

Political polarization across the globe is driving governments to embrace spending and fiscal expansion, creating a challenging landscape for monetary policy decisions. This is according to Ivo Chermont, a partner and chief economist at Quantitas, who expressed particular concerns about the upcoming Brazilian municipal elections. Chermont highlighted that while the market had not initially viewed the local elections as a significant risk, a potential loss of power for the federal government in city halls could accelerate spending in 2025, anticipating expenditures normally reserved for the 2026 presidential election year. He warned that this could lead to a surge in fiscal spending. He acknowledged that the expansionary spending trends observed during and after the pandemic were not unique to Brazil, noting similar patterns in more advanced economies like the United States and Europe. Chermont emphasized that while this spending was justifiable during the peak of the health crisis, the underlying issue stems from the erosion of traditional eight-year political cycles. He pointed to the U.S. as an example, where re-election was once a near certainty, as exemplified by Donald Trump’s presidency. This polarized political climate, he argued, has limited the space for advocating for centrist policies.