Restrictions on wage growth will have negative impact on GDP growth

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April 22, 2016 18:41

The government plans to limit the average wage in 2014 to USD 625 per month.

In 2013, rapid wage growth contributed to high growth rates in retail turnover. Against the background of reduced production, this helped to maintain positive GDP growth. If wage growth is limited in 2014, retail trade will slow down. The government hopes that greater external demand for Belarusian products will compensate for reduced trade volume in GDP, but these hopes are unfounded.

In January – October 2013, retail turnover grew by 18.2 %. Trade growth was due to wage growth in the economy. Retail turnover growth in January – October 2013 ensured GDP growth by 1.1 percentage points, which in fact, coincides with GDP growth.

In 2014 the projected average wage growth went up to USD 625. In December 2013 the average wage is anticipated at USD 600. This means that the main source for retail turnover growth will be gutted. In addition, in 2014 higher costs of housing and transport services will also limit consumer demand. Consumer price inflation forecast for 2014 is projected at 11%. The higher the inflation rate, the greater the decrease in the index of retail turnover will be. High interest rates on loans in combination with problems with payments and devaluation expectations will result in higher production costs and provoke growth in consumer prices.

In 2014, GDP growth is projected at 3.3%. Taking into account the reduced domestic demand, wholesale and retail turnover will not make a substantial contribution to GDP growth. In its forecasts the government stakes on petroleum products, potash fertilizers, automotive engineering sales growth in foreign markets. However, sales of petroleum products are directly linked to oil imports from Russia, and the supply agreement for 2014 is still missing. Prospects for potash sales are not very promising, especially taking into account lower prices on foreign markets. Sales of trucks in 2013 decreased significantly, and in 2014 sales of MAZ trucks on the Russian market will continue to fall. In fact, Russia has made an ultimatum to merge Belarusian MAZ and Russian KAMAZ.

Thus, high GDP forecast for 2014 is based on inflated expectations for the export of Belarusian goods. If Belarus faces similar problems with its exports as in 2013, retail trade will remedy GDP growth.

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