Private housing construction may help somewhat improve housing construction performance in 2015
Amid overall decline in the housing construction in 2015, private housing construction has demonstrated growth as compared with 2014. However, the overall performance of the construction industry in 2015 is likely to deteriorate and private housing construction may only help improve some statistical data and slightly slowdown the overall deterioration.
In January – May 2015, construction volumes in Belarus decreased by 2.4%, which had a negative impact on GDP (by 0.3%). Overall, 2.2 million sq. m. of housing has been built, of which 1.2 million sq. m. accounted for private housing construction. The bulk of private housing has been commissioned in Minsk and Brest regions. Due to high commissioning rates in private housing in Q1 2015, this industry has become of the economic drivers in Belarus; however, it would be unable to remedy the overall decline.
Despite some statistical growth in private housing construction in 2015, the construction industry is unlikely to show good results by the year-end. The volume of state subsidised housing construction for citizens eligible for state aid, has reduced to 2 500 000 sq. m. Many companies have cut or abandoned their investment plans.
Most industrial modernisation projects have been completed. In 2014, in the view of the World Ice Hockey Championships, many electric power and infrastructure facilities were commissioned, which has created a high comparative base for 2015. Ongoing construction works include: road construction Mogilev – Gomel and Mikashevichi – Minsk; the construction of the Belarusian nuclear power plant and a plant for the production of sulphate pulp in Svetlogorsk. Amid anticipated budget cuts, the volumes of state aid may be reduced, leading to a further reduction in the construction volumes.
Housing construction indicators in 2015 would be worse than those in 2014, however better than anticipated due to the results achieved in Q1 2015.
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.