Bloomberg News

Brazil World Cup Defeat Unlikely to Force Rousseff Loss

July 10, 2014

President Dilma Rousseff enjoyed increased support ahead of elections in October as Brazil hosted the World Cup without major problems. The question is whether her rise in the polls will survive the national soccer team’s drubbing in the semifinals.

While markets rose yesterday on speculation the July 8 loss will hurt Rousseff and help a candidate who intervenes less in the economy, political analyst Joao Augusto de Castro Neves said the defeat probably will cause a short-lived dip in polls and won’t affect the election. Neves, who works at political consulting firm Eurasia Group in Washington, hasn’t changed his forecast that gives the incumbent a 70 percent chance of winning the vote in October.

“It has a short-term impact that’s not relevant for the election,” Neves said by phone from Washington. “Dilma’s bigger worry is the economy.”

State-controlled oil producer Petroleo Brasileiro SA (PBR:US) rose 2.4 percent today in trading in Sao Paulo, while state-run Banco do Brasil SA climbed 2.1 percent. Swap rates on the contract due in January 2017 rose two basis points, or 0.02 percentage point, to 11.42 percent. The real weakened 0.6 percent to 2.2250 per U.S. dollar.

Growth in the world’s seventh-largest economy will slow to 1.35 percent this year from 2.49 percent in 2013, falling short of the Latin American average by more than half a percentage point, according to analysts surveyed by Bloomberg. Above-target inflation and a 3.75 percentage-point increase in the benchmark interest rate since April 2013 have helped drive consumer confidence to a five-year low.

Political Damage

Not all analysts agree that Rousseff will escape political damage from the 7-1 loss to Germany on July 8, the worst defeat in Brazil’s World Cup history. Brazil faces the Netherlands in Brasilia on July 12 for the third-place match.

The loss was so devastating in a soccer-crazed country that it reinforces the likelihood of an opposition victory, Tony Volpon, head of emerging markets research at Nomura Holdings Inc., wrote in a research note yesterday. Volpon gives the opposition a 60 percent chance of winning the presidency.

“This type of loss –- so unexpected and so heavy in its nature –- may have breached the threshold of what is normal and could prove to have a more lasting impact,” according to Volpon.

Alberto Bernal, the head of research at Bulltick Capital Markets, agreed the game may ultimately cost Rousseff the election and in turn spur a rally in Brazilian stocks.

Reduced Backing

The Ibovespa (IBOV) Sao Paulo Stock Exchange index on April 7 rose the most among the world’s major benchmarks as Petrobras led a rally in state-controlled companies after a poll published by public opinion research company Datafolha showed reduced backing for the incumbent.

The presidential press office didn’t respond to an e-mail seeking comment on Rousseff’s election prospects following the soccer squad’s defeat.

Some in the stadium during the game against Germany jeered Rousseff, who had promised to host the “cup of cups.”

“My nightmares never got so bad,” Rousseff said about the loss in an interview posted on CNN’s website yesterday, adding that Brazilians will recover. “The fact is that Brazil has organized and staged a World Cup, which I do believe is one of the world’s best World Cups.”

Rousseff earlier this month had improved her standing as sentiment of Brazilians toward the soccer tournament improved. Brazil’s airports, stadiums and security forces, contrary to widespread concerns, have lived up to the challenge of hosting the world’s biggest sporting tournament.

Public Spending

Her support among voters in the Oct. 5 election rose to 38 percent from 34 percent in June, according to a Datafolha poll published on Folha de Sao Paulo’s website. Aecio Neves of the Brazilian Social Democracy Party, or PSDB, had 20 percent, up from 19 percent, according to the July 1-2 survey of 2,857 people. It has a margin of error of two percentage points.

Neves in an interview televised June 13 pledged to rein in public spending as part of a policy to slow inflation to target within three years.

Much of the disappointment from the World Cup loss will dissipate by the time Brazilians line up for polls in about three months, according to Andre Cesar, director at public policy and business strategy consulting firm Prospectiva. Sporting events in the past have shown that the political impact lasts two to three weeks, he said.

Fifth Title

Since Brazil’s return to democracy, there has been no clear correlation between victories in the Cup and in presidential elections. President Fernando Henrique Cardoso won re-election in 1998 when Brazil lost to France in the finals. Four years later Brazil beat Germany for a record fifth title before the ruling PSDB party’s candidate lost to Luiz Inacio Lula da Silva from Rousseff’s Workers’ Party.

“The organization of the cup itself went well,” Cesar said by telephone. “In terms of the election, that was more important than the result.”

To contact the reporter on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net

To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net Randall Woods, Robert Jameson


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