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EDB Forecasts Belarus' GDP To Decline By 2.3%

EDB Forecasts Belarus' GDP To Decline By 2.3%

Inflation in Belarus at the end of 2020 will be 5.9%, and the economy of the Republic will shrink by 2.3%. The corresponding forecast is contained in the macro review of the Eurasian Development Bank (EDB) for Belarus. The GDP forecast is improved by one percentage point from the previous estimate.

In 2019, Belarus' GDP grew by 1.2%, and in January-August of this year, it decreased by 1.3% compared to the same period last year. In August, First Deputy Prime Minister Nikolai Snopkov said that there are no prerequisites to expect a decline in the country's GDP this year compared to 2019. Inflation in Belarus in 2019 was 4.7%. In 2020, the target for inflation is no higher than 5%. Meanwhile, in August, the National Bank of the Republic said that it expects annual inflation in the range of 5-5. 3%.

"According to the EDB forecast, inflation at the end of 2020 will be 5.9% and will exceed the National Bank's target (no more than 5%). The weakening of the Belarusian ruble and higher inflation expectations will put pressure on prices in the second half of the year against the background of increased volatility of the national currency. Restrained domestic demand will help limit the scale of inflation acceleration, "the review of the Republic of Belarus says the state of the economy and forecast," which is posted on the EDB website on Tuesday.

At the same time, it notes that by the end of 2021, the growth rate of consumer prices in the country may slow down to 5.1%, which, among other things, will cause "the predicted normalization of the dynamics of the Belarusian ruble exchange rate."

"In General, by the end of 2020, the EDB forecast assumes a reduction in Belarus' GDP by 2.3%. Compared to the previous forecast, the estimate is improved by one percentage point, which reflects mainly a smaller-than-expected decline in the second quarter due to the work of the industry in the warehouse," the macro review says.

It also notes that in 2021-2022, EDB experts in the baseline scenario expect a slow recovery of Belarus' GDP growth — by 1.1% and 1.7%, respectively. According to experts, this will contribute to the stabilization of the situation in the global economy, including in Russia, which "will be reflected in the strengthening of external and domestic demand."

However, the EDB forecast suggests that the recovery process in Belarus will take a long time. As noted in the review, high inventory levels and the unstable financial situation of the country's enterprises will limit the expansion of investment activity, and fiscal policy in the context of the implementation of the tax maneuver in the Russian oil industry and large payments on public debt will have a "restraining effect" on economic growth.

The review notes, in particular, that the Belarusian economy experienced several shocks in the first half of 2020. At the beginning of the year, difficulties with oil imports and the failure to secure a contract for the supply of potash fertilisers to China because of high stockpiles of these raw materials led to a significant drop in oil refining and chemical production, which also affected the related sectors. In Q2 2020, the economy was affected by the COVID-19 pandemic and, as a result, the nation’s GDP in April-June fell by 3.1% year-on-year. EDB analysts point out that the decline in Belarusian outputs in Q2 2020 was moderate compared to that in most other countries in the Bank’s region of operations, which may be explained by the continued functioning of industrial enterprises. Yet, this led to an increase in stocks amid suppressed demand.

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