Belarus’s medium-term economic growth is forecast at around 1.5% a year
This finding is presented in The Macroeconomic Review published by the Directorate for Research at the Eurasian Development Bank (EDB).
The review suggests that Belarus’s GDP growth in 2019 will slow down to 1.2% as another phase of economic recovery will end. Compared to the previous forecast (April 2019), the estimate was lowered by 0.3 percentage points to reflect, in the first place, the negative consequences of pumping low-quality oil into the Druzhba pipeline and the weak dynamics of foreign demand. The EDB analysts expect the Belarusian economy to grow by around 1.5% in 2020-2021.
They point out to a temporary acceleration of inflation in the first six months of 2019 driven by the rise in food prices as a result of poor crops the year before. According to the EDB, the growth of the consumer price index will decline by the end of 2019 to 5.1% year-on-year with the import of new grain crops and a reduction in inflation in the countries that are Belarus’s key trading partners.
Compared to the previous forecast (April 2019), the inflation estimate for 2019 was reduced by 0.6 percentage points. The authors explain this revision by low economic activity and a lower contribution of imported inflation against the backdrop of the appreciation of the Belarusian rouble and a rapid reduction in price growth in Russia. Marat Kussainov, Deputy Chairman of the Management Board at the EDB, believes that the medium-term inflation will be around the National Bank’s targets.
The EDB analysts estimate the one-day interbank market rate for the Belarusian rouble in 2019-2020 to have a near neutral effect on economic activity. In the medium term, as inflation will slow down, the rate may be reduced to 9-9.5%. According to Marat Kussainov, maintaining interest rates close to neutral levels is necessary to ensure price stability.
A source of risk for the Belarusian economy is, according to the EDB analysts, the persisting uncertainty of the effects the “tax manoeuvre” in the Russian oil sector will have on the country. The authors of the review suggest that Belarus’s accumulated fiscal reserves may be sufficient to compensate fiscal revenue shortfalls in 2020, yet additional fiscal consolidation may be required in the future. They also point out that external conditions may worsen and affect the nation’s economic growth, as well as the exchange rate of the Belarusian rouble, primarily through foreign trade.