Belarusian economy recovers due to industry’s exports

In H1 2017 Belarusian industry grew by 6.1%, which offset the reduced investment in fixed assets and ensured GDP growth by 1%. The pace of industrial recovery in 2016 was revised due to the reduction in oil supplies to Belarus. Positive trends in the Russian economy would increase demand for Belarusian products and enable meeting the GDP forecast for 2017.

According to Belstat, Belarus’ GDP in H1 2017 increased by 1% compared with H1 2016, amid a growth forecast at 0.2%. The largest contribution to the increase in GDP was made by industry, the index of industrial production totalled 106.1%, production growth was reported by 13 of 16 types of industrial production. The increase in output required a boost in cargo transportation, resulting in an increase in freight turnover by 4.9%. The increase in wages ensured the restoration of the retail trade to the 2016 standard. The rate of decline in investment in fixed assets slowed to 3% (in early 2017 it was 17%).

The industry began its recovery in Q4 2016 due to the increased demand for engineering products in Russia. However, it was a challenge to overcome the negative effect of the reduced oil supplies to Belarusian refineries in H2 2016. The decrease in oil supplies affected wholesale trade and transport, as production and export of petroleum products decreased. The decrease in export duties on oil products affected the funding of state programmes and investments in fixed assets, budget expenditures were limited in terms of increasing wages in budget sectors, which had a negative impact on retail turnover.

The growth in industrial production in 2017 was due to an increase in exports of Belarusian products, both in quantitative and in monetary terms. In January – May 2017, exports grew by 23%, and Russia increased its share in Belarus’ exports to 45% of total exports. The growth of investment in agriculture in Russia has led to an increase in demand for Belarusian agricultural equipment; growing prices for raw materials and the absence of technical modernisation in the mining industry have prompted new contracts for the supply of trucks. In addition, the extension of sanctions has enabled Belarusian food suppliers to increase prices and retain the market share.

Due to the settlement of the oil and gas dispute, Russia has abandoned claims against some food exporting enterprises, and oil supplies to Belarus increased to 1.8 million tons per month, which is the optimal for Belarusian refineries. If positive trends in the Russian economy persist and oil prices remain high, Belarus’ exports are likely to continue to grow in H2 2017; the state would extend the support for the economy, including by increasing public procurement; and enterprises could ensure pay rises for their employees. If there is no force majeure and the oil price remains high, Belarus could meet its GDP forecast at 1.7%.

The Belarusian industry has taken advantage of the Russian economy recovery and increased production volumes, which has led to GDP growth in H1 2017 by 1%. If oil prices retain and Russian economy continues to grow, an increase in the export of Belarusian produces would ensure the implementation of the annual GDP growth forecast for 2017.