Brazil’s economic optimism meets political complexity

Amid global turmoil, Brazil is experiencing a wave of economic optimism. Its economy is outperforming forecasts, including those of the IMF, and a credit rating upgrade by Moody’s adds to the sense that the country is moving in the right direction, despite concerns about financial stability. However, as the 2026 presidential race approaches, municipal elections in Brazil have again exposed the country’s complex political dynamics.

On Sunday, 155 million voters went to the polls to elect mayors and councilors in more than 5,500 municipalities in Brazil. Center, center-right and right-wing parties emerged victorious, highlighting President Luiz Inacio Lula da Silva’s problems as a center-left leader.

Municipal elections in Brazil, held every four years, are not a direct predictor of the presidential elections that will take place two years later. Factors such as the economy also influence the presidential contest. However, they signal political dynamics and a shift in power, ushering in a tense period of negotiations leading to a presidential race in a highly fragmented party system.

Municipal elections signal political dynamics and shifts in power, ushering in a tense period of negotiations leading to a presidential race in a highly fragmented party system.”

To understand the results, it’s helpful to look at Brazil’s recent history, starting in 2016. That year, Brazil held municipal elections amid a recession and significant political upheaval, including the impeachment of President Dilma Rousseff and a massive corruption investigation into Lava Hato. The environment favored relatively unknown third-party candidates who campaigned on anti-corruption platforms, resulting in Lula’s Workers’ Party (PT) suffering its worst municipal election defeat in history.

Two years later, Brazilians elected far-right presidential candidate Jair Bolsonaro amid growing polarization, with social media playing a significant role. Centrao, a traditional bloc of center, center-right and right-wing parties, continued to rise to prominence, winning mayoral elections and securing growing control over the budget. While some of this group is more conservative, it tends to focus on negotiating for public roles and other political resources, making the relationship between presidents and a fragmented Congress increasingly complex.

Lula returned to the presidency in 2022, making Bolsonaro the first president since Brazil’s re-democratization to fail to run for a second term. Lula’s political strength, as well as his success in forging alliances with former opponents under the banner of defending democracy, were key factors in his victory. Following the election, Bolsonaro became ineligible to run in 2026, opening space for new leaders on the right side of the political spectrum.

This year’s municipal elections highlight Centrao’s undeniable strength, with six parties winning 4,055 municipalities – 73% of the total. In practice, this means that no Brazilian leader can effectively govern the country without the support of the Center, especially its largest member, the Social Democratic Party (PSD).

This year’s municipal elections highlight Centrao’s undeniable strength. In practice, this means that no Brazilian leader can govern effectively without the support of the Centrao.”

A clearer split is emerging within the Brazilian right, making it difficult to define what was once broadly referred to as “Bolsonism” solely based on its ties to the former president. In 2018, Bolsonaro was elected from the small Social Liberal Party (PSL). Despite benefiting from its popularity, the PSL nearly disbanded due to a lack of internal leadership and differences in the profiles of its elected representatives. Bolsonaro today joined the Liberal Party (LP), a well-established player in Brazilian politics and part of the Central, which he has previously criticized.

This shift reflects the transformation of Bolsonarista, which is now divided between a faction that adheres to the traditional political classes – called institutional Bolsonarism – and a more radical faction based on conservative Christian values ​​and anti-PT sentiments. The PL’s good electoral performance makes it a key player in the 2026 presidential race. Bolsonaro’s position remains uncertain, however, as he faces a fractured electoral base and must adapt to the traditional rules of his new party, which often conflict with the interests of his more radical supporters. It is clear that the former president is no longer the undisputed leader of the right.

Lula’s leftist and center-left party, in decline over the past decade, won in 252 cities, finishing ninth in municipal control and winning only one state capital. Despite a slight recovery from 2020, it is still far from its peak in 2012, when it controlled 635 cities. This result highlights an old problem: the party still needs to reinvent itself.

These complex dynamics create uncertainty about Brazil’s future. Over the next two years, Lula is likely to adapt, including through changes to her cabinet. Better-than-expected economic performance bodes well for his administration, but a realignment of right-wing forces beyond Bolsonarism could strengthen Lula’s opponents. This, in turn, will raise new questions about whether Brazil’s left and center-left leaders can effectively find an alternative outside Lula’s shadow.