EDB Macroreview, April 2019. Republic of Belarus: trends and forecasts

In 2018, the Belarusian economy showed a high growth rate as it recovered after the recession in 2015–2016. Economic growth was supported by increasing consumer and investment activity as lending expanded, the population’s income grew, and the real sector’s economic sentiment improved. The economic growth rate in 2018 gradually slowed down as the monetary conditions’ stimulating effect decreased and the low base effect petered out. The EDB predicts Belarusian GDP to increase annually by 1.5–2% in the medium term in the absence of additional stimulation. The Belarusian ruble was highly volatile in 2018. The Belarusian currency was affected by aggravating geopolitical tension that caused the exchange rate of the Russian ruble and other EDB member countries’ currencies to fluctuate. In the medium term, the Belarusian ruble will devalue at a moderate rate as inflation in Belarus stays higher than in its main trade partner countries. Inflation in 2018 kept within the NB RB’s target range, managed by a balanced monetary policy. Yet, after reaching its historic minimum in June and July 2018, inflation began accelerating in the second semester as food and fuel price growth increased and inflation in the RF accelerated while consumer demand remained high. The buildup of inflationary pressure led the NB RB to suspend its refinancing rate reduction cycle in 2nd half of 2018. In 2019, inflation is expected to accelerate temporarily and perhaps exceed its end-of-year target level of 5%. Consumer price growth may be brought about by inflation increasing in the RF, gradual evaluation of the Belarusian ruble, and the persistent inflationary influence of wages. We predict this to be a temporary process, however, and in 2020 and 2021 inflation will be close to the NB RB’s targets. The IBC rate is expected to be in the 10–11% range, which is consistent with its neutral level. The Republic’s budget surplus expanded considerably in 2018 due to temporary factors, including commodity price growth and a high recovery growth rate in the national economy. The budget surplus reduced the country’s need to refinance its public debt. In the medium term, the budgetary and fiscal policy will remain focused on the improvement of fiscal and debt stability.