Economic performance in 2012: a good start, but a worrying outlook

The government managed to demonstrate changes in the economy. However, the desire to fulfill the projected GDP growth may backfire with devaluation, as in 2011.

On September 11^th, 2012 the National Bank and Government’s report reiterated the desire to achieve a 5.5% GDP growth.

GDP growth in January – August 2012 was 2.5%. The current consolidated budget’s surplus allows the government to feel confident enough to meet the budget targets in 2012. Real wages are growing and with a stable exchange rate, they approximate to the sacred promised USD 500 on average in the country.

However, there have been increasing adverse trends. Inflation accelerated sharply in August, reaching 2.3% that month. There has been a slowdown in the major Belarusian exports. GDP growth eased in August, reducing from 2.8% in January – July to 2.5% in January – August. In the Vitebsk region the industrial production index dropped by 31.4% in August.

In these circumstances, achieving the projected GDP growth (5.5%) is only possible by a rise in domestic demand. The sharp rise in exports is no longer possible, and more likely, we will see a slowdown in exports due to the innovative schemes’ suspension and because of the negative trends in the world economy, which affect the main Belarusian exports, in particular, potash fertilizers.

Prokopovich’s nomination as President’s Adviser on Economic Affairs will stimulate greater funding for construction, which in the past was one of the economic growth drivers. At the same time, preferential loans for housing construction were among the sources of economic problems that resulted in devaluation in 2011.

A rise in wages has led to increased internal costs, reducing the competitiveness of domestic products and resulting in an increase in both the industrial and consumer imports. Wage increases have already resulted in higher demand for foreign currency by the population and, in the first half of 2012, it became a net buyer rather than a net seller.

Conclusion: the government’s reluctance to revise GDP growth targets towards a reasonable reduction of 2.5-3% may push it to using conventional methods for GDP growth, i.e. – stockpiling goods in warehouses, housing construction growth using concessional resources and wage rises, not ensured by labor productivity. All these actions have had numerous negative consequences for the economy and their repetition is not desirable for sustainable economic development.