Belarus economic update September 2012
Official data for January-August 2012 suggest that Belarus has weathered the worst of the economic crisis that took hold in mid-2011 and resulted in the collapse of the exchange rate and triple-digit inflation late last year. Moderate GDP growth seems likely to be recorded for this year, as output volumes in most sectors are reported to be increasing. A significant improvement in Belarus’s external balance seems to have stabilized the exchange rate, which is bringing down inflation and helping household incomes and spending to recover. On the other hand, investment spending and export growth have dropped sharply. Inflation rates remain uncomfortably high, and foreign exchange reserves uncomfortably low.
GDP and output growth. The most recent official data indicate that the sharp growth slowdown that took hold during the second half of 2011 (when recorded GDP growth dropped to around 1 percent) has continued in 2012. The 2.5 percent increase in GDP that has been reported for January-August is well below the rates recorded during 2010 and the first half of 2011. As Chart 1 shows, output growth was noted in most major sectors. Construction appears to be an exception: the volume of housing construction (as measured in square meters of housing completed) was down some 7 percent through August.
External adjustment. This growth slowdown has been accompanied by a marked slowing in the pace of Belarus’s export and particularly import growth in 2012 (Chart 2), which has produced a sharp turnaround in the balance of trade in goods and services (Chart 3). Whereas the growth in dollar exports fell from 56 percent in 2011 to 27 percent during the first seven months of 2012, growth in dollar imports fell from 29 percent to 4 percent during this time.
Thanks to this turnaround, the cumulative trade surplus had reached nearly $4 billion by July 2012. This contrasts sharply with the large trade (and current account) deficits that Belarus has consistently reported in past years. It also suggests a strong reorientation in demand from domestic to external sources: the IPM Research Centre in Minsk estimates that domestic demand declined by some 6 percent during the first half of 2012,[1] thanks to a 19 percent decline in gross fixed investment during this time. On the other hand, following a spike in January, the official data point to a sharp slowdown in Belarus’s export growth over the course of 2012. Should this slowdown continue, it could threaten both growth in industrial production and further progress with external adjustment.
This external adjustment, combined with the move to a floating exchange rate in mid-2011, has helped stabilize the Belarusian rubel. As Chart 4 shows, the official exchange rate during 2012 has hovered around 8300 rubels per dollar—which represents a slight nominal appreciation vis-à-vis the rubel’s lows of late 2011. On the other hand, despite some improvement, the import coverage provided by the National Bank of Belarus’s official foreign exchange reserves remains below the three-month level that is typically regarding as a safe minimum. As of July 2012, official reserves had yet to regain their level (in terms of import coverage) of January 2010 (see Chart 5).
Inflation and household incomes. The importance of restoring exchange rate stability is seen in Belarus’s inflation trends (Chart 6). After peaking at 110 percent in January 2012, year-on-year inflation rates have since then been dropping sharply. Consumer price inflation in August fell to under 60 percent for the first time in a year; should present monthly inflation rates continue, this rate could drop to close to 20 percent by the end of the year.
On the other hand, Belarusian consumers are not yet out of the woods, in terms of price and tariff shocks for basic goods and services. For example, household electricity tariffs jumped 24 percent in August alone. More such “corrections” seem likely in late 2012 and 2013, as in inflationary trends in regulated prices and tariffs start to catch up with other components of the consumer price index. In any case, reported inflation rates in Belarus remain the highest in Europe and Central Asia.
Fortunately, the slowing pace of inflation has allowed for household incomes to recover from the hit they took last year (Chart 7). After shrinking (in year-on-year terms) from mid-2011 until this spring, households incomes have reported strong growth (in real terms) during May-July 2012. Similar trends are apparent in the data for real wages and pensions. In fact, the latest available data indicate that the average monthly pension grew 39 percent in August (in real terms), reflecting pension hikes introduced in February and then again in May. Central Bank of Russia data also point to a large (60 percent) year-on-year increase in outgoing remittances from Russia to Belarus (albeit from a relatively low level) during the first quarter of 2012. These trends suggest that the recovery in household incomes is also benefitting those vulnerable households whose welfare is most affected by the high inflation rates.
Conclusion. The most recent official data indicate that the Belarusian economy has bottomed out, the external adjustment is progressing, and that a recovery in household incomes has begun. Whether these trends can continue—particularly in light of the economic crisis in Europe and slowing growth in Russia—remains to be seen.
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[1] Belarusian monthly economic review, number 9, September 2012.
