Republic of Belarus. Recent social and economic trends and short-term prospective. May 2020

16 June 2020

The decline in external demand for non-energy goods, including due to the strengthening of the real exchange rate of the Belarusian ruble, as well as a sharp decline in exports of oil and petroleum products, were key factors in slowing the growth of the Belarusian economy in 2019 to 1.2%, compared with 3.1% in 2018. Growth in domestic demand also slowed, which, together with the exhaustion of the effect of pro-inflationary factors of previous years, contributed to a decrease in consumer inflation at the end of the year. In December 2019, 12-month inflation was 4.7% compared to 5.6% in December 2018 and the NB's target of 5%. Monetary policy, in general, had a restraining effect on inflation and inflation expectations, which was reflected, among other things, in a decrease in the level of core inflation. The decline in revenues from oil and petroleum products trade has had a noticeable impact on the compression of budget revenues, while the expenditure part of the consolidated budget has expanded due to increased expenditures of the Social Protection Fund. Despite the negative revenue dynamics, the consolidated budget was executed with a surplus. The unfavorable external economic environment affected the deterioration of foreign trade indicators. The trade deficit widened, due to a drop in physical export volumes against the background of continued growth in imports and some deterioration in the terms of trade. To a large extent, the trade deficit was due to deterioration in the trade balance in non-energy goods, which was the result of slower growth in Russia, strengthening of the Belarusian ruble and maintaining stable demand for consumer imports on the background of continuing growth in real incomes of the population and consumer loans. An increase in the services surplus and a decrease in investment income outflow due to the deterioration of economic profitability, which affected the reduction of the primary income deficit, somewhat offset the deterioration of the trade deficit. However, the current account deficit widened to 1.8% of GDP, against a slight surplus in 2018 (+0.04% of GDP). The spread of COVID-19 in early 2020 led to disruption of global production and trade chains, a sharp reduction in global demand, and a significant drop in prices for energy and other natural resources. All these factors will have a negative impact on the economy and population of Belarus.