Belarus GDP to shrink by more than 2% in 2015

In February 2015, Belarusian economy’s performance declined, mainly due to recession in Russia. The economic performance will continue to fall – by 2% in the best case scenario.

In January – February 2015, Belarus’ GDP fell by 0.6% over the same period in 2014 (by 0.4% in January alone). Negative trends persist in the Belarusian economy. Industry and transport had the most negative impact on GDP. Of 16 industries, only two demonstrated growth compared with 2014. Moreover, falling incomes have led to a slowdown in trade. Wholesale trade has reduced compared with 2014 due to termination of bituminous mixtures supplies. Freight turnover decreased, due to reduced transit between Russia and the EU.

Slump in industry is directly related to the Russian market situation. MAZ sales fell in 2015 by more than 20%. Belaz, which mainly supplies to the Russian market, lowered production by 30% compared with January-February 2014, which was also misfortunate for the enterprise. Labour market situation has changed too. Previously, amid devaluation in Belarus, Belarusians were leaving to seek jobs in Russia and domestic enterprises had to increase wages to retain workers. In 2015, wages on the Russian market declined and the wage gap between Belarus and Russia shrank to USD 100, which, taking into account transportation and housing costs, has discouraged many from labour migration to Russia. The devaluation of the Russian rouble and western sanctions have significantly reduced trade turnover between Russia and the EU, which in turn decreased transit through Belarus, a transit country.

The Belarusian economy will continue to reduce. In 2014, potash production was record high, which would be difficult to repeat in 2015. In 2014, refineries were fully loaded and increasing the output in 2015 would mean increasing their capacities, which is not feasible. The Bank of Russia predicts further decline in investment demand on the Russian market in 2015, which means further decline in production for the Belarusian machinery. In 2015, Belarus has high external debt payments, which will not allow stimulating the economy with loans artificially. All possible budget revenues will be spent to repay external debts and there are no additional resources in the economy. GDP growth as projected by the government is only possible if sanctions against Russia are lifted and oil prices go up to USD 80-90 per barrel. However, this option seems unlikely. In 2015, a good result for the Belarusian economy would be a decline by 1.5-2%, while further sanctions against Russia could reduce it to 3-4%.

Belarus’ strong dependence on the Russian market, which is in recession, has led to a slump in the Belarusian economy. In 2015, GDP growth is hardly feasible, in the given circumstances, a good result will be GDP reduction by 1.5-2% compared with 2014.