The worsened external environment in early 2020 creates new challenges for Belarus’s economic growth

26 March 2020

Moscow, 26 March 2020. The worsened external environment in early 2020 has created new challenges for Belarus’s economic growth. This finding is presented in the Macroeconomic Review for Belarus prepared by the Economic Analysis Department of the Directorate for Research at the Eurasian Development Bank (EDB).

The review notes that, in 2019, the country’s GDP grew by 1.2%, down from 3.1% the year before. The main reason for the decline was that the country had completed its economic recovery after the 2015–2016 recession. The new stage of the economic cycle is characterised by lower consumer demand and a reduction in net exports.

EDB analysts forecast Belarus’s GDP to drop by 0.1% in 2020, which is 1.6 percentage points lower than their previous estimate (October 2019). The revision is mainly associated with the expected reduction in the outputs of the oil processing and chemical sectors, which will result from lower imports of energy resources and the fact that the world has formed significant reserves of potash fertilisers. Weaker external demand, in particular because of the spread of coronavirus, will also have a restraining effect. With the stabilisation of the global economy and gradual restoration of oil product and potash fertiliser outputs, the country’s GDP is expected to grow cyclically to 2.0% in 2021.

The review points out that, in 2019, inflation slowed to 4.7%, from 5.6% the year before. According to Anatoly Kharitonchik, Chief Specialist of the Economic Analysis Department at the EDB, the key factors behind this decline include higher supplies of agricultural produce as a result of increased yields; the weak pricing environment abroad; the appreciation of the real effective exchange rate of the Belarusian ruble; and a slowdown in consumer activity. The Bank projects that, in 2020, inflation will be around the National Bank’s target and amount to 5.3%.

As inflation risks lessened in the second half of 2019, the National Bank lowered its refinancing rate to 8.75% per annum in early March 2020. Anatoly Kharitonchik estimates that, in 2019, interest rates had a weak constraining effect on economic activity, which was largely associated with a reduction in their neutral levels driven by the global trend of lowering monetary policy rates. At the beginning of 2020, inflationary risks grew amid the increased volatility in global financial and commodity markets. Under these circumstances, the EDB’s base-case scenario suggests that, in 2020, the interbank lending rate will remain at about 9%, which, according to the Bank’s analysts, will keep inflation near the National Bank’s target. Yet, it may go down in the medium term.

The review notes that the predominant risks are associated with the possible weakening of economic activity. These include the likelihood of a more significant reduction in oil product outputs if raw material imports continue to decline. The consequences of coronavirus for the global economy also remain highly 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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