Belarus’ government projects GDP growth at 2% in 2015
On October 31st, the government issued a statement projecting GDP growth forecast for 2015 at 2%. This somewhat constrained optimism is due to the fact that Belarus will only be able to fulfil her projections if the external economic environment is favourable. However, so far, the external economic situation is not in Belarus’ favour and she has no means influence that.
In January-September 2014, Belarus’ economy grew by 1.5% (annual forecast is 3.3%), which was mainly due to growth in retail trade and industry. The retail trade grew thanks to nominal wage growth (compared with 2013) and industrial performance at Belaruskali and Belarusneft. Growth in sales of potash and petroleum products had a positive effect on the wholesale trade performance. The construction industry had a negative impact on GDP due to the completion of several major modernisation projects.
In 2015, the government projected GDP growth at 2% (IMF and WB – at 1.5% and EBRR – at 0.5%). The growth is projected due to greater proceeds in the modernised industries, i.e. woodworks and metallurgy. Potash production in 2014 has reached its capacity and has limited opportunities for further growth. Oil refining may count on larger production capacity only by 2016, thus will be unable to show substantial growth in 2015. In 2015, the government is planning to launch new projects in the pulp and paper industry; however, the demand may be lower than projected. In addition, people’s real wages are not projected to grow considerably in 2015, which will restrict growth of trade and consumer goods production.
The economic forecast for 2015 may not be fulfilled also due to external factors, such as the situation in the Russian economy. US and EU sanctions have led to the devaluation of the Russian ruble and the decline in real incomes. Russia’s investment activity is limited. Banks have problems with accessing financial markets, which has reduced Russia’s ability to finance the economy. For Belarus, it means a drop in demand for consumer goods (furniture, appliances, and cars), machinery (trucks, mining and road construction equipment) in 2015. To improve the profitability of export supplies, food producers will have to increase prices, which may lead to a decrease in exports of goods instead of the projected increase.
In 2015, the Belarusian economy will not have many sources to ensure growth, and everything will depend on the favourable external economic situation. If Russia continues her self-isolation policy, Belarus’ economic growth plans may be hampered, so as it would reduce the demand for Belarusian products in Russia amid fluctuating Russian rouble exchange rate.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.