Recession registered in Belarus
On May 15th Belstat published data on Belarus’ socio-economic development in January-April 2013.
Despite the positive nominal GDP growth rate, in April 2013 GDP level was below April 2012. All methodological and administrative practices of GDP growth inflation have been exhausted. Artificial pumping of GDP by the construction intensification and investment in fixed assets may show some success until mid Q3, and only if the external economic situation in the Russian market is stabilized.
In January-April 2013, GDP growth rate was 2.5%. In Q1 (January-March) 2013, GDP growth was 3.5%. In fact, in April the three-month GDP growth reduced by one percentage point, suggesting that GDP decline in April 2013 to April 2012 was 0.5-0.6%. Negative GDP growth was recorded in Q4 2012 - 1.5% over the same period in 2011. GDP growth in Q1 2013, was mostly artificial and short-lived. April data recorded an economic decline, and with adjustments by ‘methodological procedures and administrative measures’ Belarus experiences industrial production decline and about zero GDP growth during six months, which can be characterized as a recession.
Reduced pace of piling stocks (in April 2013, stocks totaled BYR 1 trillion, which is the lowest value in 2013) reinforced the decline in industrial production. In April, two industries that provided for the most increases in stocks of goods - vehicles and machinery production and equipment manufacturing – reduced their production volumes to stop further increases in the volume of non-liquid products in warehouses. Retail and wholesale trade growth rates are slowing down. Net taxes on products, one of the main sources of GDP growth in Q1, in spite of all attempts to increase with growth in industrial subsidies, can no longer increase by a significant amount due to the overall economic situation.
Q2 2013 showed negative economic trend, primarily due to the extremely high comparison base in 2012. The government links some hopes with the construction sector, which is expected to be ‘heated up’ by a Decree on public procurement for the housing construction needs. However, the results will not come soon, because it takes time to reconfigure the entire housing construction system in the country and to harmonize the legislation. However, housing construction will not be able to improve the overall economic situation in Belarus if there are no improvements on the Russo-Belarusian foreign trade market. Without an increase in engineering exports to the Russian market, the domestic demand and exports to other countries will not ensure the industry’s growth in the economy, and hence GDP.
Thus, Belarus is directly affected by the negative global trends and slowed down economies. Attempts to heat the Belarusian economy artificially will still be made and the consequences will depend on their scale. Excessive efforts will inevitably bring back the issue of devaluation on the Belarus’ economic agenda.
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.