Industry may help Belarusian government to meet GDP growth forecast for H1 2017
In Q1 2017, industry provided for GDP growth at 0.3%. Since the drop in oil prices, GDP has grown for the first time in the past three years. Amid insignificant fluctuations in oil price, the settlement of the oil and gas dispute and the lifting of trade restrictions on Belarusian produces on the Russian market would enable meeting the government's GDP forecast at 1% in H1 2017.
According to the government's quarterly plan, in Q1 2017 GDP should have declined by 0.4%. GDP has grown mainly thanks to industry, only in 4 out of 16 industries reported a decline in output as compared with 2016; freight turnover in transport has increased, so as the agriculture’s performance. The most difficult situation was in construction, only 994 thousand square metres of housing had been commissioned, which was 12% less than in the same period in 2016.
The last time quarterly growth in GDP was reported was in 2014. The devaluation of the national currency, the drop in oil prices and sanctions against Belarus’ leading economic partner, Russia, had had a negative impact on the economic development in 2015-2016. Belarus had no funds to support the economy through cheap loans, financial assistance from Russia reduced, and the absence of economic reforms prevented FDI. As a result, in 2015 GDP reduced by 3.8% and in 2016 by 2.6%.
The situation in 2017 is more favourable. Higher oil prices, as compared with those anticipated, have boosted Russia’s demand for Belarusian produces. The settlement of the oil and gas dispute and the resumption of the oil supply at 24 million tons per year in 2017 would facilitate improvements in the oil refining performance. Additional oil cargo would improve freight turnover in rail transport. Removal of trade restrictions would step up Belarusian exports of foodstuffs and engineering goods. An increase in wages amid curtailed inflation would have a positive impact on retail turnover. The situation in construction could only be improved with substantial loans, however its negative performance would be compensated by successes in industry. Hence, if oil prices remain above USD 50 per barrel, the government’s GDP growth plan at 1% in H1 2017 would materialise.
Overall, for the first time in the past three years the Belarusian economy has demonstrated GDP growth, mainly thanks to industrial performance. Thanks to the projected oil supply at 24 million tons and the settlement of trade conflicts with Russia, the government's plans to increase GDP by 1% in H1 2017 are likely to materialise, provided, that current oil prices retain.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.