2014 GDP growth forecast will not be met

Over the past four months, GDP growth was circa 1.5%. The 2014 GDP growth forecast cannot be met due to Belarus’ export and economic potential being revised. In 2015, GDP growth will be low due to uncertainty in the Russian economy and the Belarusian rouble may face devaluation due to the economy being artificially pumped.

According to the National Statistics Committee, the GDP growth in 10 months 2014 was 1.5%, while the forecast for 2014 assumed a 3.3% growth. Since July, despite the industrial production growth, GDP growth was consistent. In November-December 2014, given the recent indicators, achieving the projected GDP growth rate will be impossible. High performance indicators from the potash, oil refining and mining industries are offset by a fall in livestock production, poor construction industry performance and setback in engineering production. The situation is aggravated by the trend towards reduced growth in retail trade turnover (compared with 2013).

The GDP forecast for 2014 assumed a significant improvement in foreign trade in goods and services. Export growth was anticipated at 8.6%. However, in January-September 2014, there was no growth in exports of goods and services. This was due to a drop in exports of engineering goods amid Russian market stagnation and Russian rouble devaluation. Belarus’ exports are not highly diversified, and the bulk of products are sold on the Russian market. In addition, the projected growth in agriculture production also has not matched expectations. The livestock population has not been restored, resulting in negative effects on raw meats supplies to processing plants.

The final version of the GDP forecast for 2015 has not yet been approved. The only positive factor which could affect GDP growth in 2015 in Belarus is an agreement allowing Belarus to keep oil duties.

In addition, Belarus is expected to sign a three-year contract for gas supply at prices not higher than in 2014. Belarus may also increase exports of dairy to the Russian market. However, the situation in the Russian economy is highly uncertain due to falling oil prices. So far, Belarus has been refusing to readjust her exchange rate policy, which makes Belarusian goods less competitive on the Russian market.

The upcoming presidential elections may also affect the decision on the GDP growth forecast in 2015.

Given the circumstances, even a minor (within 1%) GDP growth may be considered a positive result in 2015. If the government projects 2015 GDP growth at 3-4%, it may lead to negative consequences such as artificially pumping the economy, which would result in devalulation of the Belarusian rouble in the short-term.

Belarus has underestimated the situation on the foreign markets, a mistake which has contributed to the 2014 GDP forecast not being fulfilled. If the 2015 GDP forecast is high, the pressure on the national currency will increase and the Belarusian rouble might be devalued by more than 20%.