Negative GDP in Belarus to be adjusted using domestic resources
Most Belarusian regions have failed their projected socio-economic parameters in Q1 2016 due to low oil prices and dropping exports of potash fertilizers. Belarus may somewhat adjust the dynamics of GDP decline by reducing costs in the industry. Only at oil prices higher than USD 50 per barrel Belarus may achieve the economic performance comparable with 2015.
According to the National Statistics Committee, Belarus’ GDP in Q1 2016 decreased by 3.6% compared with the same period of 2015. Performance has deteriorated in all economic sectors except for agriculture and power generation. The biggest decline was in the construction, due to the lack of funds for the replacement of fixed assets and a decrease in the volume of private housing construction.
GDP forecast parameters and labour productivity were failed in all regions except Mogilev Oblast, where performance indicators had been set at a lower, compared to other regions, level. Projected figures for exports of goods excluding oil and petroleum products have only been met in Minsk and Grodno Oblast.
The main reason why development indicators have not been met, was due to inflated expectations for the average annual oil price, reduced potash sales on foreign markets and continued stagnation in the Russian economy. The baseline scenario for 2016 assumed an average annual oil price at USD 50 per barrel, but de facto, in Q1 2016 the oil price was at USD 30-35 per barrel. In January - February 2016, potash sales fell by 38% in value terms. The Russian economy in Q1 2016 shrank by 1.4%, while Russia’s baseline scenario envisaged Russian GDP to decline by 1.3-1.5% in 2016.
If negative trends persist on foreign markets, Belarusian GDP may be somewhat stopped from falling due to domestic resources. Since household incomes are unlikely to increase, retail trade is unlikely to remedy the situation. The construction industry may reduce the rate of decline only if there is a large-scale investment by the state, which is unlikely given limited budgetary resources. Agriculture may show some growth due to low comparative base in 2015, provided, that it has the financial resources and technology envisaged in the agricultural development programme for 2016 -2020. But agriculture has only a small proportion in the economy, which would be insufficient to improve GDP significantly. If potash sales improve, wholesale may stop having a negative impact on GDP.
GDP may somewhat improve if the state increases tax burden on private sector and reduces costs in the industry by restructuring loss-making enterprises. In addition, the state may carry out further lay-offs and reduce the cost of corporate loans. This may lead to an increase in bankruptcies of state-owned enterprises, an increase in unemployed amid shortage of new jobs and a reduction of corporate loan costs to 20-25% per annum.
If mentioned above measures are implemented, GDP fall may slow down to 2-2.5%, but in order to reach the level of 2015, oil prices need to rise above USD 50.
Projected social and economic development parameters have been failed due to overestimated oil price expectations. Some measures aiming to reduce costs in the industry may slow down GDP decline to 2%-2.5%, but unlikely to achieve the level of 2015.