Belarus will meet inflation forecast for 2016
In January - November 2016, consumer prices in Belarus grew by 10.1%. Unlike in recent years, there were no major price hikes in 2016 due to the stability of the BYN exchange rate and frozen pay rises. The forecast for inflation in 2016 at 12% will be met, which will allow to reduce interest rates in the economy.
According to the National Statistics Committee, in November 2016, consumer prices rose by 0.8% and overall inflation since the beginning of the year totalled 10.1%. In 2016, housing and utility services costs grew most rapidly: technical maintenance costs increased by 63%; lift usage, heating and sanitation costs by more than 40%. Housing and utility costs went up due to the government's plans to reduce cross-subsidies in the economy in order to end subsidies entirely by 2018. Food prices went up by 9.4% in 2016 and prices on other consumer goods by 7.4%.
In previous years, devaluation was the main driver of price hikes in the Belarusian economy. Devaluation of the Belarusian rouble led to higher prices for imported goods. In addition, Belarusian producers used a lion’s share of imported raw materials, which led to subsequent price hikes on domestic products. In January-November, 2016, the Belarusian rouble depreciated against the US Dollar by 6.3% and against Euro by 3.3%. People’s additional income thanks to pay rises was absorbed by a rise in the utility costs, leading to reduced demand and lower prices on imported consumer goods.
According to the government's forecast for 2016, inflation should not exceed 12%, which would be the minimum value for the last six years. Housing and utility costs will continue to increase in early 2017. As a rule, prices on seasonal fruits and vegetables go up in December. Hence, in order to contain inflation in December, the authorities are likely to fix prices on some produces and announce sales on a wide range of food and non-food items. In addition, the regulatory bodies may implement price monitoring in trade networks and apply administrative measures to suppliers and manufacturers who increased prices unreasonably. In 2016, Belarus is likely to fail most economic forecast indicators and the economic authorities will aspire to demonstrate positive trends in the economy. Thanks to administrative means, inflation in 2016 is likely to remain within the limits of the forecast, which will allow to lower interest rates in the economy and reduce the enterprises’ debt burden vis-a-vis the banks.
Overall, the stability of the Belarusian rouble in Belarus has had a moderating effect on prices. Taking into account the administrative resource possibilities, the inflation forecast for 2016 will be met and interest rates in the economy will continue to reduce.
The Belarusian economy was shrinking for the second year in a row, in 2016, by 2.6%. Before 2015, the Belarusian economy was growing for 18 consecutive years. In order to stop the economic slump, Belarus needs a favourable international market situation and to settle all trade disputes with Russia. The Belarusian economy is unlikely to recover before 2018.
According to the preliminary reports, in 2016, Belarus had a 2.6% GDP decline. The Belarusian economy was shrinking for the second year in a row – a 3.8% decline in 2015. Most economic indicators in 2016, except in agriculture, had negative values. Wholesale trade had the most negative impact on GDP due to falling exports of potash fertilizers and petrochemicals, as well as construction, due to reduced investment in fixed assets by enterprises and decreased housing construction volumes.
In 1996-2011, the Belarusian economy was growing most rapidly, average GDP growth rate was 6.9% per year. In 2011, amid emission injections in the economy, disproportionate growth of wages against the background of low productivity and significant financial aid for loss-making agricultural, construction and industrial enterprises, the Belarusian rouble depreciated by three times. The absence of economic reforms and significant relative weight of state in the economy amid deteriorating external economic environment led to a sharp economic slowdown – circa 1% per year in 2012-2014; the slowdown was followed by the recession, caused by a slump in the prices for basic exports from Belarus and cuts in soft loans issued to maintain production volumes.
Belarus’ budget for 2017 is based on anticipated 0.2% growth. The expected decrease in the construction volume is circa 17% in 2017, which is unlikely to allow industrial growth with the renewal of fixed assets by legal entities. Even if wages grow, they will be offset by the 15% increase in utility tariffs by late 2017. Wholesale trade is largely dependent on the potash market situation and the oil processing volume at the Belarusian refineries. In view of the planned reduction in Russian oil supply in Q1 2017 to 4 million tons, wholesale growth is only possible provided the potash market situation improves. In late 2016, engineering output increased significantly, but amid the trade conflict with Russia, she may prioritise purchases from domestic manufacturers. In the given circumstances, Belarus’ GDP would only grow in 2017, provided the Russo-Belarusian dispute over energy supplies was fully resolved, Russia removed barriers for Belarusian exports and the potash market situation improved. That said, Belarus’ GDP in 2017 is likely to decrease by 0.5% - 1% and is likely to be followed by an attempt to overcome the recession in 2018.
The Belarusian economy has been in recession for two consecutive years. Amid anticipated decline in retail trade, construction and unresolved dispute over energy supplies from Russia, economic recession is likely to persist in 2017 and the economic recovery may be postponed until 2018.