Attempt to meet 2015 forecast could undermine relative stability on Belarusian currency market

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April 22, 2016 19:20

In H1 2015, the Belarusian economy was far behind the targets planned for 2015. The economy is lagging behind mainly due to the devaluation of the national currencies in Russia and Belarus, as well as sanctions imposed against Russia. Economic tasks set by Lukashenka may only be achieved by switching on the printing press, which, in the short term, may lead to devastating consequences for the domestic currency market. 

Presidential decree No 550 of December 1st, 2014 envisaged GDP growth in 2015 at 0.2% -0.7%, labour productivity at 1.5% - 2% and real incomes at 1.1% - 1.5%. However, in H1 2015 GDP fell by 3.3%, labour productivity decreased by 1.5% and real incomes of the population decreased by 5%. In addition, exports of goods and services have not reached the anticipated volumes, while the balance of goods and services has demonstrated better values than expected.

 Belarus is currently unable to meet the projected socio-economic development parameters for 2015 due to several factors. Firstly, the forecast has been approved before the devaluation and has not envisaged changes in macroeconomic indicators following the devaluation of the national currency. In addition, the forecast had overstated the average cost of oil, which had a negative impact on international trade data. Secondly, the forecast has not take into account the negative effects of sanctions on the Russian economy. And finally, the forecast for diversification of exports of Belarusian products has been overestimated. 

In H2 2015 GDP would somewhat improve due to the low comparative base of H1, however, not enough to meet the forecast. Current oil prices deteriorate the situation and enhance the negative impact on demand from Russian companies for Belarusian products. 

In the given circumstances, the forecast may only be achieved if the government switches on the printing press to pump the economy as it did in 2010. Higher wages would then lead to a surge in consumption and growth of indices in wholesale and retail trade. Demand for domestic products would increase adding a few percentage points to industrial production. Goods unsold on the market would be sent away to warehouses. 

However, in the shot-term, such pumping of the economy with money would lead to a sharp elevation of pressure on the currency market, growth of imports, reduction of exports due to rising costs, and the need to devalue the Belarusian rouble. In order to avoid potential catastrophic consequences the government may choose moderate stimulation of the economy, yet in that case, it would be unable to meet the projected forecast and would blame it on the negative processes in the global economy. 

In 2015, Belarus would be unable to meet the economic growth forecast without pumping money into the economy. The government may choose moderate stimulation of the economy, yet nevertheless would be unable to meet the projected forecast.

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