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Belarus Business Forecast Report Q1 2015

  • December 2014
  • -
  • Business Monitor International
  • -
  • 36 pages

Core Views

The ongoing crisis in Ukraine will ensure support for President Alexander Lukashenko remains robust in the run up to the 2015 presidential election. Opinion polls indicate voters prefer the stability engendered by the regime to the uncertainty following the ousting of the president, and we believe the government will continue to divide its focus between closer Russian and EU relations. The Belarusian economy will receive a boost over the remainder of 2014 and into 2015 as agricultural exports to Russia increase in the wake of the Kremlin’s ban on Western food imports. Nevertheless, the damage done to the Russian economy by the tit-for-tat sanctions will feed through into declining investment into Belarus and a fall in export demand beyond the initial one-year timeframe for the import ban.
Consumer price inflation in Belarus will remain elevated in the quarters ahead as Russia’s ban on the import of foodstuffs from the EU and other Western states results in higher export volumes to Russia, but a constriction in domestic supply.

Major Forecast Changes

In light of the close economic and political relationship between Belarus and Russia, geographic proximity and already entrenched agricultural bilateral trade links, we believe exports to Russia (Belarus’ largest export market) will increase over 2015. As a result we have revised up our real GDP growth forecast for 2014 from 0.9% to 1.0% (still well below the optimistic 2.0% target set by President Alexander Lukashenko), but we hold to our forecast of 1.5% in 2016.

Table Of Contents

Belarus Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Little Threat To Regime Stability 8
Belarus will remain on a stable political trajectory in the run-up to presidential elections in November 2015, as the state continues to
prevent the formation of any coherent opposition movements. The ongoing crisis in Ukraine will also bolster support for the incumbent,
as Belarusians prioritise national stability over democratisation.
table: Political Overview 8
Long-Term Political Outlook 9
Focus Remains On Russia 9
Belarus' long-term political stability is jeopardised as a result of the country's lack of institutional development beyond the executive
branch. Consequently, while our core scenario is for President Alexander Lukashenko's regime to maintain its grip on power over the
long term, we do not rule out the possibility of growing public dissatisfaction resulting in a sudden change of leadership or direction. The
most likely spark for any public unrest is the November 2015 presidential election, with large protests erupting following the 2010 poll.
We believe the country's greatest challenge over the coming decade will stem from the regime's efforts to diversify its foreign policy
agenda while maintaining strong links with Russia.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Flagging Competitiveness To Cap Growth 14
Belarus' over-valued currency and unsustainable wage growth will continue to harm its international competitiveness over the coming
years. In addition, the government's huge footprint in the economy and the country's narrow industrial base will ensure that fixed
investment in Belarus remains weak.
table: GDP Contribution To Growth 14
Balance Of Payments 16
No Escape From C/A Deficit 16
Belarus' current account deficit will remain a key risk to macro stability over the coming years as an overvalued currency fuels imports
and hurts competitiveness. Low FX reserves and an almost complete reliance on Russian finance will increase the country's external
table: Current Account 16
Fiscal Policy 18
Budget Deficit To Widen 18
Belarus will post widening fiscal deficits over the coming years, as the government struggles to curb public sector wage growth and
push ahead with the privatisation of state-owned companies. Nevertheless, continued support from Russia will prevent a significant
deterioration in Belarus' fiscal accounts.
table: Fiscal Policy 18
Monetary Policy 20
High Inflation Here To Stay 20
Inflation will remain extremely high in Belarus over the coming quarters as the government chooses to keep interest rates relatively
low to support economic activity. In addition, both rapid wage growth and increased Russian demand for Belarusian food products
will continue to drive up domestic prices.
table: Monetary Policy 20
Business Monitor International Ltd www.businessmonitor.com 3
Chapter 3: 10-Year Forecast 23
The Belarusian Economy To 2023 23
Economy Faces Tough Years Ahead 23
We remain downbeat on Belarus' long-term growth potential on the back of the large footprint of the state on the economy, which
will stifle productivity and deter private fixed investment. We do, however, expect the country to pursue a modest degree of political
liberalisation, although we caution that meaningful democratisation is unlikely and that Moscow will remain Minsk's principal
table: Long-Term Macroeconomic Forecasts 23
Chapter 4: Operational Risk 25
Operational Risk Index 25
Operational Risk 26
table: Operational Risk 26
Transport Network 27
table: Transport Network Risks 28
Economic Openness 30
table: Economic Openness 31
tabl e: Top Five Products Exp ort ed, (USDmn ) 32
tabl e: Top Five Trad e Partn ers - Product Imp orts , (USDmn ) 33
Chapter 5: BMI Global Assumptions 35
Global Outlook 35
Warning Signs Growing 35
table: Global Assumptions 35
table: Developed States, Real GDP GrowtH, % 36
table: Emerging Markets, Real GDP Growth, % 37

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