Eurasian Development Bank: Belarusian economic growth to slow down in 2019

This year, the gross domestic product of Belarus will grow only by 1.6%, the new analysis of the EDB says. This will be consistent with the general trends in the countries that are participating in the international bank. However, the pressure from Russia and the growth of wages may lead to higher inflation, bank experts believe.

Restrained growth

Last year, Belarus’s GDP rose by 3.1%, it is noted in the analysis. The reason for the almost double slowdown in economic growth in 2019 is seen by the EDB analysts in the fact that the period of resumed activity, which followed the fall in GDP in 2015 and 2016, is ending.

Due to the fact that the EDB does not see any new reasons for the strengthening of the Belarusian economy, it expects that the economic growth will continue to be restrained in the future — 1.9% in 2020, 2% in 2021. However, at the same time, the Belarusian government expects GDP growth in 2019-2021 by 2.1%, 2.5% and 2.8%, respectively. Why is the difference almost one and a half times?

“There is a broad consensus that the Belarusian economy will grow according to its potential by 1.5-2.5%. I would not oppose these predictions. In fact, this is one and the same forecast. Qualitatively, they do not differ. Plus, we have a political moment when in the past the government came up with realistic and pessimistic forecasts, but the head of state did not approve them,” explains Vadzim Iosub, senior analyst at Alpari.

Inflation risk – Russian pressure and wage growth

On the one hand, the EDB notes that the increase in real wages in Belarus in 2018 supports consumer demand, and hence, economic growth. On the other hand, bank analysts note an increase in inflation — above all, prices for meat and meat products, as well as fuel.

It is the price rise in Russia that also aggravates the situation with inflation in Belarus. There are also high inflation expectations among the Belarusian population.

“At the beginning of 2019, additional inflationary pressure may arise through faster inflation in Russia due to an increase in the value added tax rate … Maintaining increased inflationary expectations, high wage growth and a possible further increase in domestic fuel prices due to the implementation of tax maneuver in Russia increase the risk of higher inflation [in Belarus – ed.],” EDB analysts believe.

However, on the whole, they note, consumer price growth in 2019 will remain within the “target level of the National Bank of the Republic of Belarus”. According to Resolution No. 989 of the Council of Ministers, this means inflation of no more than 5% for the year.

It turns out that the potential of the unreformed Belarusian economy now is lagging behind global GDP growth rates which is growing by 3% or more now.

Alyaksandr Helahayeu,