Restrictions on wage growth will have negative impact on GDP growth
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.
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.