The EDB projects Belarus’s GDP to decline by 2.3% in 2020, with recovery expected over the next two years

22 September 2020

Moscow, 22 September 2020. The Eurasian Development Bank (EDB) projects Belarus’s GDP to decline by 2.3% in 2020 and then recover over the next two years. This finding is presented in the Macroreview for Belarus prepared by the Directorate for Research at the Eurasian Development Bank (EDB).

The review notes, in particular, that the Belarusian economy experienced several shocks in the first half of 2020. At the beginning of the year, difficulties with oil imports and the failure to secure a contract for the supply of potash fertilisers to China because of high stockpiles of these raw materials led to a significant drop in oil refining and chemical production, which also affected the related sectors. In Q2 2020, the economy was affected by the COVID-19 pandemic and, as a result, the nation’s GDP in April-June fell by 3.1% year-on-year. EDB analysts point out that the decline in Belarusian outputs in Q2 2020 was moderate compared to that in most other countries in the Bank’s region of operations, which may be explained by the continued functioning of industrial enterprises. Yet, this led to an increase in stocks amid suppressed demand.

The EBD’s base case projections suggest that the easing of restrictions in the countries that are Belarus’s trading partners and the improved epidemic situation in the country should contribute to a gradual recovery of business activity in Belarus. This process is expected to be long, however, because of restrained external demand, the worsened financial condition of enterprises, overstocking, and limited fiscal reserves. In these conditions, it is likely that consumer and investment activity will remain low in the second half of the year and that GDP may decline by 2.3% as at year-end. The return to pre-crisis production levels is expected during 2021–2022.

The review also notes that pressure on the national currency increased in August because of high devaluation expectations. This factor, along with higher geopolitical risks and a seasonal deterioration in foreign trade, is expected to help to maintain the Belarusian rouble exchange rate against the US dollar at a level near to current values. The EDB projects its adjustment to the equilibrium level in 2021–2022, provided that the situation in the domestic financial market stabilises, the pandemic is brought under control, and the geopolitical situation normalises.

EDB analysts point out to accelerated inflation in the first half of the year, mainly because of the depreciation of the national currency, as well as possible transport and logistics difficulties amid the pandemic. As Anatoly Kharitonchik, Chief Specialist of the EDB Economic Analysis Department notes, the depreciation the Belarusian rouble will continue to affect the prices of goods and services in the coming months, which, according to EDB projections, will accelerate inflation to 5.9% by the end of the year, while restrained domestic demand will help to limit the scale of this process. The indicator may decelerate in 2021–2022 provided that the exchange rate dynamics normalises.

Amid accelerating inflation, the EDB projects the refinancing rate to remain at 7.75% until the end of the year. It is still possible that the rate may be reduced in the medium term, but this will depend on how quickly the situation in the domestic financial market and the geopolitical situation normalise.

The review notes that risks remain high and may worsen the projection as the emerging economic recovery remains unstable because of the continuing threat of a large-scale second wave of the pandemic, the aggravation of US-Chinese relationships, and the strengthening of sanction rhetoric. In addition, the impact of August–September events on the country’s investment climate remains uncertain.

Additional Information:

The Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan. 

The EDB Media Centre:

Alexander Savelyev +7 (985) 765 23 59 (Moscow)  

Azima Sapargaliyeva +7 (777) 750 00 08 (Almaty)

Sergey Gorbachev +7 (916) 727 22 00 (Moscow)

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