Brazil’s President Dilma Rousseff won re-election and stretched her Workers’ Party’s rule to a record 16 years, according to Folha de S. Paulo newspaper.

Rousseff, who has maintained record-low unemployment even as the economy posted the slowest growth under any Brazilian president in more than two decades, had 51 percent of the vote with 98 percent of ballots counted by the electoral court in Brasilia. Senator Aecio Neves, a former governor of Minas Gerais state, had 49 percent. Folha owns polling company Datafolha, which predicted the result based on 95 percent of the ballots counted.

In a campaign that featured “change” as the buzzword for both sides, Rousseff argued that Neves’s economic proposals would produce recession and erase gains for 36 million Brazilians who have risen from extreme poverty under her party’s rule. Investors rooted against Rousseff on the grounds that her policies have caused above-target inflation, stalled growth and withered investment. Market sentiment will remain weak until she shifts course, said Alberto Ramos, chief Latin America economist for Goldman Sachs Inc.

“The cold reality of the facts will make the re-elected administration understand that policies need to change a bit in order to avoid further damage and in order to avoid a credit rating downgrade,” Ramos said by phone from New York before the election. “Promises will not necessarily turn around expectations. At this stage, they have to deliver.”

Stock Market

In the runup to the election, more than two-thirds of Brazilians polled by Ibope said they’re looking for change. Last year, 1 million took part in street protests, as the growing middle class expressed demands for better education, health services, and public transport.

Rousseff, 66, channeled the call for change by promising a “new government” with “new ideas,” announcing in September that Finance Minister Guido Mantega would not return in her second term. She also cast doubt on what sort of shift Neves would represent, saying he would boost interest rates to shock inflation down to target, triple the jobless rate, and curtail social programs.

Throughout the campaign, Brazil’s stock market and currency weakened when polls indicated Rousseff might win, including a 6.8 percent drop in the Ibovespa index during the final week as polls showed her support rising.

The real has weakened 33 percent since Rousseff took office, more than all but one of the 16 major currencies tracked by Bloomberg. The Ibovespa has lost 25 percent.

Rousseff’s Defense

Rousseff defended her economic performance by saying she preserved jobs in the face of the global economic crisis. While the economy entered recession in the first half of this year, September’s 4.9 percent unemployment rate was a record low for the month. Real average income has risen 10 percent during Rousseff’s tenure and 33 percent in the past decade.

The Workers’ Party has built support through programs such as Bolsa Familia, which transfers cash to 14 million poor families, and a public housing drive will have 2.75 million homes contracted by year-end, with 3 million more planned. Her Mais Medicos, or More Doctors in English, program sent 14,000 Brazilian and foreign doctors into underserved areas.

The government has also funded post-high school technical education for families that benefit from welfare programs, while Rousseff and her predecessor Luiz Inacio Lula da Silva provided 20 billion reais ($8.1 billion) in subsidized loans to about 1.6 million students and scholarships for 1.4 million Brazilians.

‘Rapid Rise’

“Voters have gone through a rapid rise in their economic standards and conditions, and that benefits the incumbent,” Christopher Garman, head of emerging markets research at political risk consulting firm Eurasia Group, said by phone from Washington. “When the incumbent says if you vote for the opposition you run the risk of losing what you have, that resonates.”

The swelling of the middle class places a greater burden on Rousseff to deliver economic growth, said Paulo Sotero, director of the Brazil Institute at the Woodrow Wilson International Center for Scholars. She says Finance Minister Mantega won’t stay on in her second term, which indicates she has heard the market’s call for renewal and will bring in “new blood,” he said.

“People want to see actual measures, actual policy that responds to some of their concerns of excessive taxation, excessive bureaucracy, excessive government interventionism, and a completely clogged regulatory system -- those are the real issues,” Sotero said by phone.

Business Confidence

Business confidence as measured by the National Industry Confederation is at its lowest level in more than a decade. Investment in 2013 amounted to 18 percent of gross domestic product, lowest of all nations in the so-called BRICS group and less than half China’s rate, according to the World Bank. It hit 16.5 percent of GDP in the second quarter, the least in 7 1/2 years.

While restoring confidence to boost investment will be important, Rousseff’s greatest challenge is slowing inflation to the 4.5 percent target and re-anchoring expectations, according to Goldman’s Ramos. Annual price increases exceeded that level her entire term and reached 6.75 percent in September, above the 6.5 percent ceiling of the target range. In her second term she will do an “even better” job of containing price increases than in the past, she said Oct. 5.

Credit Rating

Moody’s Investors Service raised the possibility that it could cut Brazil’s credit rating to junk when it lowered the outlook to negative on Sept. 9. The move came six months after Standard & Poor’s lowered Brazil’s rating for the first time in more than a decade to one level above junk, citing weak growth and worsening fiscal accounts. A string of monthly primary deficits suggest this will be the second straight year the government fails to meet its budget surplus target.

Rousseff and Mantega have said Brazil’s first technical recession in five years is the result of headwinds from the global slowdown. The world economy will grow about eight times faster than Brazil in 2014, according to economists surveyed by Bloomberg, who expect Latin America’s largest nation to grow 0.3 percent this year and 1.3 percent in 2015.

The state of the economy did not deter Rousseff’s supporters, especially in the poorer regions of the country such as the northeast, who have benefited under the Workers’ Party, according to Eurasia’s Garman.

“This is an electorate that wants change, but they have something to lose,” he said.