Forecast for 2016 in economy

April 22, 2016 19:39

The main trend in 2015 was that the authorities abandoned the practice of maintaining employment at all costs and adjusting production volumes in the industry to the current demand for manufactured products.

In 2016, the government will have to deal with the building up of cyclical crisis against the backdrop of considerable uncertainty in the foreign trade due to the unpredictable dynamics of oil prices and the situation on the Russian market.

The industry is likely to suffer from a further reduction in production volumes, due to the persisting negative trends in the Russian economy.

The food industry is likely to face increasing competition, both on foreign and domestic markets, which will be due to the Russian industry’s attempts to diversify imports and pressure from Ukrainian products.

The fall in food prices and the devaluation of national currencies in several countries-buyers of the Belarusian fertilizers, create an unfavourable background for the chemical industry in 2016.

Machine-building enterprises will continue to adjust to falling demand for their products in Russia. Diversification of foreign trade would not compensate for a further drop in sales on the Russian market. Belarusian oil industry, thanks to new agreements will increase oil supplies and may increase production in 2016, however this positive impact will not compensate for the drop in production in other industries.

In foreign trade, next year Belarus is likely to attempt to take advantage of the Russian embargo on import from several countries and organize re-export of goods from the sanctions list. The decline in natural gas prices will have a negative impact on exports of chemical products on foreign markets.

Oil prices will have a significant impact on foreign trade, which is impossible to predict. Trade conflicts within the Eurasian Union are likely to increase and member countries may introduce reciprocal bans on the supply of some goods. Imports will continue to be under pressure on the domestic market and additional preferences for domestic products may be introduced. The state will renew attempts to restrict consumer imports, including in online trading.

The situation with the state foreign exchange reserves will depend on the effectiveness of negotiations with the Russian government and the IMF. Belarus’ consent to a partial economic reform would send a positive signal to foreign investors, and in the case of access to international financial markets, would attract the required financial resources to repay domestic and external public debt. If Russia grants a new USD 2-3 billion loan, economic reforms may be postponed until there is a new financial need.

Without improving financial health in agriculture, the problem with settlements in the economy will not be resolved. In 2016, one of the main reasons for enterprises of different ownership seizing their operations would be a significant amount of overdue receivables.

A significant reduction in the interest rate on loans in the banking sector is very unlikely due to the absence of non-equity long-term credit resources in the national currency. The National Bank will carry out a tight monetary policy targeting inflation, which will not envisage a significant expansion of the money supply and lowering the discount rate below 20% per annum.

In 2016, Belarus’ GDP is likely to continue to reduce and in the best case scenario will be around 1%-1.5%.

If oil prices drop below USD 40 per barrel, the economy may contract by almost 3%. This will require depreciation of the national currency at circa 25-30%, which will inevitably lead to a further decline in the living standards. If that is the case, the likelihood of systemic reforms will increase and they may start in 2017.