ANALYSIS: Belarus economy’s key performance indicators deteriorating

Monthly overview of Belarus’ real economy sector, Jan-Jun 2021 MINSK, Jul 28 – PrimePress. There is still a high degree of uncertainty in the Belarusian economy due to the political processes running in the country after the 2020 presidential election. The actions by the Belarusian authorities remain unpredictable for economic entities, which only increases negative expectations in the economy. At the same time, sanctions pressure from the West is growing. So far, however, the restrictive measures have not weakened Belarus’ public sector so much as they have increased the country’s dependence on Russia. Despite unfavourable long-term factors, Belarus’ economy has so far demonstrated accelerated growth so far this year, due to last year’s low comparative base, as well as favourable pricing conditions in the external markets for oil and oil products, as well as potash fertilisers. The main negative signals are accelerating inflation, as well as the dynamics of fixed investment, which instead of a “new investment cycle” reflects stagnation of investment activity in the country. Table 1. Key indicators of Belarus’ macroeconomic performance: <table border="1" cellspacing="1" cellpadding="0"> <tbody> <tr> <td> Indicator </td> <td> Real figures, Jan-Jun 2021, billion Belarusian rubles </td> <td> Jan-Jun 2021 on Jan-Jun 2020, % </td> <td> Official forecast for 2021, % </td> </tr> <tr> <td> GDP </td> <td> 78.928 </td> <td> +3.3% </td> <td> +1.8% (+0.5% in H1) </td> </tr> <tr> <td> Industrial output </td> <td> 71.135 </td> <td> +10.4% </td> <td> no forecast </td> </tr> <tr> <td> Fixed capital investments </td> <td> 13.086 (16.6% of GDP) </td> <td> minus 7.2% </td> <td> 21.3-21.7% of GDP </td> </tr> <tr> <td> Inflation growth since early 2021, % </td> <td> 5.8* </td> <td> 9.9 (Jun 2021 on Jun 2020) </td> <td> 5% at most </td> </tr> <tr> <td> Foreign trade balance (goods and services), USD billion </td> <td> +1.248** </td> <td> +0.548** </td> <td> no forecast </td> </tr> <tr> <td> Real disposable household incomes, year on year, % </td> <td> +3.5** </td> <td> +5.5*** </td> <td> +1.6% (+1.8% in H1) </td> </tr> </tbody> </table> * year to date ** Jan-May 2021 *** Jan-May 2020 GDP growth in the second quarter was on a low base of 2020 In early July the National Statistical Committee of Belarus (Belstat) made a second (more precise) estimate of the country’s GDP for the first quarter, according to which the level of GDP growth in January-March changed from 0.9% to 1.1%. Herewith the GDP deflator index was recalculated from 111.2% to 113.3%, which reflects a faster growth of prices in the Belarusian economy. The GDP figure for Q1 was adjusted from Br36.3bn to Br37.1bn. According Belstat’s preliminary data, GDP rose by 5.4% year-on-year in April-June this year. According to the schedule, a second estimate of the GDP for Q2 2021 is to be published in early October. After that the GDP may change (more likely upwards). It is worth noting that Q2 saw a consistent fading of economic growth in Belarus. According to preliminary data, GDP grew by 7.2% in April, by 5.3% in May and by 3.8% in June. This GDP development reflects a sequential increase in the reference base for Q2 2020. A deceleration of growth in 2021 was mirrored by a decrease in economic recession in 2020. All in all, Belarus’ GDP amounted to Br78.9 billion in H1 2021, up 3.3% year on year. The GDP deflator index reached 115.7%, which reflects high growth rates of prices and tariffs in the main sectors of the economy. According to the EDB estimates, the current year was affected by the low base effect of 2020. Despite strong growth in industry, “indicators of domestic demand point to stagnation”. GDP growth at the expense of external demand and weak domestic demand makes the dynamics of the indicator highly susceptible to changes in external conditions. On July 19, EDB analysts reported that “GDP change for the month, with seasonal fluctuations eliminated, is estimated at around 0% in May and June”. According to the EDB expert group, this “may indicate that the process of economic recovery is over”. In this regard, the EDB maintains expectations of slower growth of the Belarusian economy in the second half of the year. The main drivers of economic growth in the first half of the year were the manufacturing, energy and information and communications sectors. The contribution of these aggregated activities to GDP growth in H1 2021 was distributed as follows: manufacturing - about 69%, energy - about 11% and information and communication - about 16%. The increase in output in the energy sector is explained by two factors. First, the winter season 2020-2021 was generally around the climate norm, while the winter of 2019-2020 was the warmest in the history of observations by Belarus’ meteorological service (Belgidromet). Second, on 22 December 2020, the pilot operation phase of the first power unit at the Belarusian NPP started, with specialists starting a step-by-step ramping up of the reactor to its nominal capacity. During the first months of 2021, the growth drivers within industry were oil refining and chemical production. At the end of June, it became known that key enterprises of these industries fell under EU sanctions. Against this background, Belstat stopped publishing production volumes and indices for these industries (starting from June). For this reason, it is difficult to identify the drivers of economic growth in terms of industries and regions of the country. At the same time, it is clear that in H2 2021 the positive influence of oil refining and the chemical industry on GDP dynamics will generally fade due to a higher comparison base of 2020. NBB downgrades end-of-year inflation forecast to 9% Inflation, which has accelerated this year, does not seem to be slowing down and is already well above initial forecasts (5% at yearend) made by the government. In June 2021 consumer prices grew 9.9% year on year against 9.4% a month earlier, the increase of prices for socially important goods was at the level of 8.6% against 8.4% in May 2021. According to Belstat, food prices increased by 0.7% month on month in June 2021 and by 5.8% compared to the level of Dec 2020. Food prices increased by 0.5% month on month in June 2021 and by 6.0% in Jan-Jun 2021. Non-food prices increased by 0.7% month on month in June 2021 and by 6.3% compared to the level of Dec 2020. Tariffs and services – up 0.9% (+5.1%). Annual core inflation in Belarus accelerated to 10.1% in June 2021 from 9.3% a month earlier. Trend inflation in June was 8.5% compared to 7.8% in May. Regulated prices and tariffs increased by 9.6% year on year against 9.4% a month before. According to MART, the prices of medicines (up 0.2%), motor fuel (up 2.7%), as well as tariffs for pre-school services - up 9.8% (due to the annual increase in the nutritional standards for the summer period) and medical services - up 0.5% month on month. The increase in seasonal prices (fruit and vegetable products) slowed down to 8.6% vs. 11.7% in May 2021. Under the current circumstances, as well as taking into account a number of external factors, the National Bank of Belarus decided to raise the refinancing rate again, increasing it by 75 basis points to 9.25% per annum from July 21, 2021. In an official commentary published on July 15, the regulator announced its short-term inflation forecast, which was considerably downgraded compared to the forecast made on 14 April 2021. For instance, while in April the regulator estimated annual inflation in December 2021 to be near 7%, in July the National Bank decreased its optimism to 9% at yearend. Correspondingly, a further slowdown in inflation is expected in the longer term - at the end of 2022 the National Bank expects a slowdown to 6% (in April the regulator hoped to return to the medium-term target of 5% in Q2 2022). Thus, Belarus continues to face elevated inflation risks due to both external and domestic factors. The domestic factors include the actions of the authorities in the area of price regulation as well as heightened inflation expectations fuelled by the instability and unpredictability of the economy. Launch of new investment cycle postponed The launch of a new investment cycle in 2021, announced by Belarusian Prime Minister Roman Golovchenko in October 2020, remains just another slogan without any real implementation. According to the calculations of the authorities, the share of capital investments in GDP should amount to 21.3%-21.7% by late 2021. However, in the first half of the year this indicator was only 16.6% of GDP against 19.3% in H1 2020. However, in nominal terms, fixed-capital investment fell by 7.2% year on year in January-June 2021 to Br13.086bn. Construction and installation works (including equipment installation) decreased by 10% down to Br6.678 billion, while expenses for the purchase of machinery, equipment and transport vehicles decreased by 4.6% to Br4.911 billion. Thus, both main components of investment are declining: construction and installation works, and expenditures on machinery, equipment and vehicles. The decline in investment can be attributed to the tailoring of the 2021 budget by increasing the share of current spending at the expense of capital spending, and also to move by the EBRD and EIB to freeze funding for new infrastructure projects in Belarus. Investment in housing construction in H1 2021 amounted to Br2.8bn, down 0.5% year on year in comparable prices. The floor area of housing commissioned in H1 2021 amounted to 2.041 million square metres, up 15% year on year. Of the total volume of housing commissioned in January-June 2021, 42.5% was built for households registered as being in need of better housing conditions (38.2% in January-June 2020), including 31% with state support (29%). Spawned by the outcomes of the 2020 presidential election, the high uncertainty in Belarus’ economy continues to affect investment activity. The unpredictable actions of the authorities towards economic actors, both small private enterprises and large international players, make it impossible to plan business projects even in the short term. Against the backdrop of negative expectations and the continuing probability of financial sector destabilisation this year, such traditional Belarusian sources of investment financing as bank loans, state budget funds, as well as enterprises' own funds are significantly limited. At the same time, the latter remain the backbone of investment activities of Belarusian companies. According to the National Statistics Committee, in H1 2021, investments from enterprises’ own funds amounted to 45.1% of total investment (42.8% a year earlier), down 2.6% year on year in comparable prices. Investments at the expense of the consolidated budget funds accounted for 16.8% of the total volume of investments in H1 2021 (20% a year ago), down 21.7% in comparable prices. Investment in fixed assets through bank credits (loans) decreased by 8.9% (13.4% H1 2021 versus 13.6% in the total volume of investment in H1 2020), foreign investment - down 22.2% yoy in H1 2021 (2.6% versus 3.1%). At the same time, it can be noted that both foreign and domestic investors refuse to implement investment projects in Belarus not only because of the high political uncertainty inside the country, but also under the influence of the sanction pressure against Belarus from the West. Productivity growth still lagging behind wage growth The data published in July indicates that the imbalance in the growth of wages and labor productivity still remains. According to Belstat, with nominal average monthly wage growing 15% year on year in January-May 2021, labor productivity increased by 4.1% over the stated period. And this imbalance has persisted for a number of years. On the one hand, wage growth is taking place against the backdrop of accelerating economic growth. However, the increase in gross macroeconomic indicators is largely due to the low base effect observed in the first half of 2020, rather than due to improved economic efficiency, which makes wage growth unreasonable and thus inflationary. Meanwhile, after the traditional seasonal surge in March, the average wage indicator is in no hurry to grow at the same rate in the following months of this year. According to Belstat, after the average wage grew by 8.4% month on month in March 2021, the month-on-month increase in the average wage in April made less than 1%, in May - 1.5% and in June - less than 1%. However, compared to the level of June 2020 the increase in nominal wages in June 2021 was 14.3%. Real wages and salaries (inflation-adjusted) increased by 4% year on year in June 2021. In US dollar terms the average wage continued to rise in June as well, partly as a result of favourable exchange rate conditions. Based on the average monthly exchange rate calculated by the National Bank, the USD equivalent of the June 2021 average wage is $568.8, compared to $561.2 in May 2021 and $524 in June 2020. In addition to the traditional income statistics, in July Belstat also published data on the median wage. According to Belstat, in May 2021, the median wage of employees of Belarusian organizations amounted to Br1,018, up 13.9% year on year. In this case, the median wage was 28.3% lower than the average nominal wage, which is most often used by the Belarusian authorities. Moreover, in July, data on the distribution of the number of employees by wages was made public. Based on Belstat data, the most “popular” accrued wage in Belarus is a salary in the range of Br1,000.1 - Br1,500. In May this year 28.2% of workers could see it in their wage calculation sheets (24.8% in May 2020). Wages in the range of Br600.1-Br800 are second in “popularity”. They were received by 16.1% of workers (18.3%). It should also be noted that salaries under Br500 were paid to 9.4% of workers in May this year (14.5% a year earlier). The dynamics is positive; however, if we take into account that the average wage is calculated excluding taxes, we can say that many Belarusian workers still earn less than the proverbial “$500 per person”, if we count in USD terms. Macroeconomic conditions remain unstable The high degree of uncertainty in the Belarusian economy after the presidential election of 2020, increasing sanctions pressure, the credit debt burden of the real sector, and resource shortages in both the banking system and the budget of Belarus are not conducive to stimulating investment processes and improving quality indicators. At the same time the absence of subtle signs that the current crisis is nearing resolution makes independent experts downgrade their forecasts about the future of Belarus. In recent months, the EDB, S&P and the EBRD have updated their forecasts for the dynamics of the Belarusian economy. At the end of June, the European Bank for Reconstruction and Development (EBRD) downgraded its estimate of Belarus' GDP growth by 0.5 p. p. Also the EBRD downgraded its estimate of Belarus’ GDP growth in 2022 (by 0.4 p. p.) to the same 0.5% as in 2021. The EBRD linked the slowdown of the Belarusian economy with the reinforcement of EU sanctions. The EBRD analysts considered “economic sanctions, which will affect export-oriented potash and oil industries, are a serious risk to growth prospects.” The EBRD experts noted that during the coronavirus crisis, direct lending to state-owned enterprises by state-owned banks supported the resilience of the Belarusian economy. At the same time, this mechanism increases the vulnerability of the economy in the medium term. According to S&P analysts, the sanctions imposed on Belarus by the European Union on June 24 “will not put immediate pressure on the country’s balance of payments or the government's ability to service its debt”. However, macroeconomic conditions in the country remain unstable given the lingering political crisis, the possibility of tightening international sanctions and the need for continued financial support from Russia. S&P believes that in the next 12 months (after June 2021) the prolonged political crisis and international sanctions could put more pressure on the country’s economic, fiscal and balance of payments indicators than currently anticipated. S&P has estimated that the new sanctions and related logistical difficulties may worsen the already low prospects for economic growth in Belarus. The agency forecasts economic growth of 0.5% in 2021, mainly due to a very slow recovery in domestic demand. S&P also notes downside risks to export performance in the second half of the year, when the effects of the imposed trade restrictions with the EU will begin to show. At the same time, the S&P economic outlook “is characterised by a high degree of uncertainty as never before”. The EDB sees Belarus’ GDP growth at 1.3% in 2021 in the baseline scenario, but does not exclude a 1-2% decline in the case of the risk scenario due to the intensification of Western sanctions. Positive effects for the Belarusian economy from external demand may be offset in the second half of 2021 due to the strengthening of restrictive measures by the US, the EU and other countries. At the same time, EDB experts pointed to the uncertainty of estimates of the impact of sanctions on the dynamics of the Belarusian economy. In the baseline scenario for 2021 the EDB estimates the loss of GDP growth in Belarus at around 1-1.5 pp. If the impact of restrictive measures is much weaker than in the baseline scenario, Belarus’ economy may grow, according to EDB calculations, by around 2% in 2021. Under this scenario, GDP growth in Belarus in 2022 will slow to 0.5-1% “due to limited growth potential”. PrimePress Business Analysis Agency

2021-07-29

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ANALYSIS: Belarus economy’s key performance indicators deteriorating

Monthly overview of Belarus’ real economy sector, Jan-Jun 2021

MINSK, Jul 28 – PrimePress. There is still a high degree of uncertainty in the Belarusian economy due to the political processes running in the country after the 2020 presidential election. The actions by the Belarusian authorities remain unpredictable for economic entities, which only increases negative expectations in the economy. At the same time, sanctions pressure from the West is growing. So far, however, the restrictive measures have not weakened Belarus’ public sector so much as they have increased the country’s dependence on Russia.

Despite unfavourable long-term factors, Belarus’ economy has so far demonstrated accelerated growth so far this year, due to last year’s low comparative base, as well as favourable pricing conditions in the external markets for oil and oil products, as well as potash fertilisers. The main negative signals are accelerating inflation, as well as the dynamics of fixed investment, which instead of a “new investment cycle” reflects stagnation of investment activity in the country.

Table 1. Key indicators of Belarus’ macroeconomic performance:

Indicator	Real figures, Jan-Jun 2021, billion Belarusian rubles	Jan-Jun 2021 on Jan-Jun 2020, %	Official forecast for 2021, %
GDP	78.928	+3.3%	+1.8% (+0.5% in H1)
Industrial output	71.135	+10.4%	no forecast
Fixed capital investments	13.086 (16.6% of GDP)	minus 7.2%	21.3-21.7% of GDP
Inflation growth since early 2021, %	5.8*	9.9 (Jun 2021 on Jun 2020)	5% at most
Foreign trade balance (goods and services), USD billion	+1.248**	+0.548**	no forecast
Real disposable household incomes, year on year, %	+3.5**	+5.5***	+1.6% (+1.8% in H1)

* year to date

** Jan-May 2021

*** Jan-May 2020

GDP growth in the second quarter was on a low base of 2020

In early July the National Statistical Committee of Belarus (Belstat) made a second (more precise) estimate of the country’s GDP for the first quarter, according to which the level of GDP growth in January-March changed from 0.9% to 1.1%. Herewith the GDP deflator index was recalculated from 111.2% to 113.3%, which reflects a faster growth of prices in the Belarusian economy. The GDP figure for Q1 was adjusted from Br36.3bn to Br37.1bn.

According Belstat’s preliminary data, GDP rose by 5.4% year-on-year in April-June this year. According to the schedule, a second estimate of the GDP for Q2 2021 is to be published in early October. After that the GDP may change (more likely upwards).

It is worth noting that Q2 saw a consistent fading of economic growth in Belarus. According to preliminary data, GDP grew by 7.2% in April, by 5.3% in May and by 3.8% in June. This GDP development reflects a sequential increase in the reference base for Q2 2020. A deceleration of growth in 2021 was mirrored by a decrease in economic recession in 2020.

All in all, Belarus’ GDP amounted to Br78.9 billion in H1 2021, up 3.3% year on year. The GDP deflator index reached 115.7%, which reflects high growth rates of prices and tariffs in the main sectors of the economy.

According to the EDB estimates, the current year was affected by the low base effect of 2020. Despite strong growth in industry, “indicators of domestic demand point to stagnation”. GDP growth at the expense of external demand and weak domestic demand makes the dynamics of the indicator highly susceptible to changes in external conditions.

On July 19, EDB analysts reported that “GDP change for the month, with seasonal fluctuations eliminated, is estimated at around 0% in May and June”. According to the EDB expert group, this “may indicate that the process of economic recovery is over”. In this regard, the EDB maintains expectations of slower growth of the Belarusian economy in the second half of the year.

The main drivers of economic growth in the first half of the year were the manufacturing, energy and information and communications sectors. The contribution of these aggregated activities to GDP growth in H1 2021 was distributed as follows: manufacturing - about 69%, energy - about 11% and information and communication - about 16%.

The increase in output in the energy sector is explained by two factors. First, the winter season 2020-2021 was generally around the climate norm, while the winter of 2019-2020 was the warmest in the history of observations by Belarus’ meteorological service (Belgidromet). Second, on 22 December 2020, the pilot operation phase of the first power unit at the Belarusian NPP started, with specialists starting a step-by-step ramping up of the reactor to its nominal capacity.

During the first months of 2021, the growth drivers within industry were oil refining and chemical production. At the end of June, it became known that key enterprises of these industries fell under EU sanctions. Against this background, Belstat stopped publishing production volumes and indices for these industries (starting from June).

For this reason, it is difficult to identify the drivers of economic growth in terms of industries and regions of the country. At the same time, it is clear that in H2 2021 the positive influence of oil refining and the chemical industry on GDP dynamics will generally fade due to a higher comparison base of 2020.

NBB downgrades end-of-year inflation forecast to 9%

Inflation, which has accelerated this year, does not seem to be slowing down and is already well above initial forecasts (5% at yearend) made by the government. In June 2021 consumer prices grew 9.9% year on year against 9.4% a month earlier, the increase of prices for socially important goods was at the level of 8.6% against 8.4% in May 2021.

According to Belstat, food prices increased by 0.7% month on month in June 2021 and by 5.8% compared to the level of Dec 2020. Food prices increased by 0.5% month on month in June 2021 and by 6.0% in Jan-Jun 2021. Non-food prices increased by 0.7% month on month in June 2021 and by 6.3% compared to the level of Dec 2020. Tariffs and services – up 0.9% (+5.1%).

Annual core inflation in Belarus accelerated to 10.1% in June 2021 from 9.3% a month earlier. Trend inflation in June was 8.5% compared to 7.8% in May. Regulated prices and tariffs increased by 9.6% year on year against 9.4% a month before. According to MART, the prices of medicines (up 0.2%), motor fuel (up 2.7%), as well as tariffs for pre-school services - up 9.8% (due to the annual increase in the nutritional standards for the summer period) and medical services - up 0.5% month on month.

The increase in seasonal prices (fruit and vegetable products) slowed down to 8.6% vs. 11.7% in May 2021.

Under the current circumstances, as well as taking into account a number of external factors, the National Bank of Belarus decided to raise the refinancing rate again, increasing it by 75 basis points to 9.25% per annum from July 21, 2021. In an official commentary published on July 15, the regulator announced its short-term inflation forecast, which was considerably downgraded compared to the forecast made on 14 April 2021.

For instance, while in April the regulator estimated annual inflation in December 2021 to be near 7%, in July the National Bank decreased its optimism to 9% at yearend. Correspondingly, a further slowdown in inflation is expected in the longer term - at the end of 2022 the National Bank expects a slowdown to 6% (in April the regulator hoped to return to the medium-term target of 5% in Q2 2022).

Thus, Belarus continues to face elevated inflation risks due to both external and domestic factors. The domestic factors include the actions of the authorities in the area of price regulation as well as heightened inflation expectations fuelled by the instability and unpredictability of the economy.

Launch of new investment cycle postponed

The launch of a new investment cycle in 2021, announced by Belarusian Prime Minister Roman Golovchenko in October 2020, remains just another slogan without any real implementation. According to the calculations of the authorities, the share of capital investments in GDP should amount to 21.3%-21.7% by late 2021. However, in the first half of the year this indicator was only 16.6% of GDP against 19.3% in H1 2020.

However, in nominal terms, fixed-capital investment fell by 7.2% year on year in January-June 2021 to Br13.086bn. Construction and installation works (including equipment installation) decreased by 10% down to Br6.678 billion, while expenses for the purchase of machinery, equipment and transport vehicles decreased by 4.6% to Br4.911 billion.

Thus, both main components of investment are declining: construction and installation works, and expenditures on machinery, equipment and vehicles. The decline in investment can be attributed to the tailoring of the 2021 budget by increasing the share of current spending at the expense of capital spending, and also to move by the EBRD and EIB to freeze funding for new infrastructure projects in Belarus.

Investment in housing construction in H1 2021 amounted to Br2.8bn, down 0.5% year on year in comparable prices. The floor area of housing commissioned in H1 2021 amounted to 2.041 million square metres, up 15% year on year.

Of the total volume of housing commissioned in January-June 2021, 42.5% was built for households registered as being in need of better housing conditions (38.2% in January-June 2020), including 31% with state support (29%).

Spawned by the outcomes of the 2020 presidential election, the high uncertainty in Belarus’ economy continues to affect investment activity. The unpredictable actions of the authorities towards economic actors, both small private enterprises and large international players, make it impossible to plan business projects even in the short term.

Against the backdrop of negative expectations and the continuing probability of financial sector destabilisation this year, such traditional Belarusian sources of investment financing as bank loans, state budget funds, as well as enterprises' own funds are significantly limited. At the same time, the latter remain the backbone of investment activities of Belarusian companies.

According to the National Statistics Committee, in H1 2021, investments from enterprises’ own funds amounted to 45.1% of total investment (42.8% a year earlier), down 2.6% year on year in comparable prices.

Investments at the expense of the consolidated budget funds accounted for 16.8% of the total volume of investments in H1 2021 (20% a year ago), down 21.7% in comparable prices. Investment in fixed assets through bank credits (loans) decreased by 8.9% (13.4% H1 2021 versus 13.6% in the total volume of investment in H1 2020), foreign investment - down 22.2% yoy in H1 2021 (2.6% versus 3.1%).

At the same time, it can be noted that both foreign and domestic investors refuse to implement investment projects in Belarus not only because of the high political uncertainty inside the country, but also under the influence of the sanction pressure against Belarus from the West.

Productivity growth still lagging behind wage growth

The data published in July indicates that the imbalance in the growth of wages and labor productivity still remains. According to Belstat, with nominal average monthly wage growing 15% year on year in January-May 2021, labor productivity increased by 4.1% over the stated period. And this imbalance has persisted for a number of years.

On the one hand, wage growth is taking place against the backdrop of accelerating economic growth. However, the increase in gross macroeconomic indicators is largely due to the low base effect observed in the first half of 2020, rather than due to improved economic efficiency, which makes wage growth unreasonable and thus inflationary.

Meanwhile, after the traditional seasonal surge in March, the average wage indicator is in no hurry to grow at the same rate in the following months of this year. According to Belstat, after the average wage grew by 8.4% month on month in March 2021, the month-on-month increase in the average wage in April made less than 1%, in May - 1.5% and in June - less than 1%.

However, compared to the level of June 2020 the increase in nominal wages in June 2021 was 14.3%. Real wages and salaries (inflation-adjusted) increased by 4% year on year in June 2021.

In US dollar terms the average wage continued to rise in June as well, partly as a result of favourable exchange rate conditions. Based on the average monthly exchange rate calculated by the National Bank, the USD equivalent of the June 2021 average wage is $568.8, compared to $561.2 in May 2021 and $524 in June 2020.

In addition to the traditional income statistics, in July Belstat also published data on the median wage. According to Belstat, in May 2021, the median wage of employees of Belarusian organizations amounted to Br1,018, up 13.9% year on year. In this case, the median wage was 28.3% lower than the average nominal wage, which is most often used by the Belarusian authorities.

Moreover, in July, data on the distribution of the number of employees by wages was made public. Based on Belstat data, the most “popular” accrued wage in Belarus is a salary in the range of Br1,000.1 - Br1,500. In May this year 28.2% of workers could see it in their wage calculation sheets (24.8% in May 2020). Wages in the range of Br600.1-Br800 are second in “popularity”. They were received by 16.1% of workers (18.3%).

It should also be noted that salaries under Br500 were paid to 9.4% of workers in May this year (14.5% a year earlier). The dynamics is positive; however, if we take into account that the average wage is calculated excluding taxes, we can say that many Belarusian workers still earn less than the proverbial “$500 per person”, if we count in USD terms.

Macroeconomic conditions remain unstable

The high degree of uncertainty in the Belarusian economy after the presidential election of 2020, increasing sanctions pressure, the credit debt burden of the real sector, and resource shortages in both the banking system and the budget of Belarus are not conducive to stimulating investment processes and improving quality indicators. At the same time the absence of subtle signs that the current crisis is nearing resolution makes independent experts downgrade their forecasts about the future of Belarus.

In recent months, the EDB, S&P and the EBRD have updated their forecasts for the dynamics of the Belarusian economy.

At the end of June, the European Bank for Reconstruction and Development (EBRD) downgraded its estimate of Belarus' GDP growth by 0.5 p. p. Also the EBRD downgraded its estimate of Belarus’ GDP growth in 2022 (by 0.4 p. p.) to the same 0.5% as in 2021.

The EBRD linked the slowdown of the Belarusian economy with the reinforcement of EU sanctions. The EBRD analysts considered “economic sanctions, which will affect export-oriented potash and oil industries, are a serious risk to growth prospects.”

The EBRD experts noted that during the coronavirus crisis, direct lending to state-owned enterprises by state-owned banks supported the resilience of the Belarusian economy. At the same time, this mechanism increases the vulnerability of the economy in the medium term.

According to S&P analysts, the sanctions imposed on Belarus by the European Union on June 24 “will not put immediate pressure on the country’s balance of payments or the government's ability to service its debt”. However, macroeconomic conditions in the country remain unstable given the lingering political crisis, the possibility of tightening international sanctions and the need for continued financial support from Russia.

S&P believes that in the next 12 months (after June 2021) the prolonged political crisis and international sanctions could put more pressure on the country’s economic, fiscal and balance of payments indicators than currently anticipated.

S&P has estimated that the new sanctions and related logistical difficulties may worsen the already low prospects for economic growth in Belarus. The agency forecasts economic growth of 0.5% in 2021, mainly due to a very slow recovery in domestic demand.

S&P also notes downside risks to export performance in the second half of the year, when the effects of the imposed trade restrictions with the EU will begin to show. At the same time, the S&P economic outlook “is characterised by a high degree of uncertainty as never before”.

The EDB sees Belarus’ GDP growth at 1.3% in 2021 in the baseline scenario, but does not exclude a 1-2% decline in the case of the risk scenario due to the intensification of Western sanctions. Positive effects for the Belarusian economy from external demand may be offset in the second half of 2021 due to the strengthening of restrictive measures by the US, the EU and other countries. At the same time, EDB experts pointed to the uncertainty of estimates of the impact of sanctions on the dynamics of the Belarusian economy.

In the baseline scenario for 2021 the EDB estimates the loss of GDP growth in Belarus at around 1-1.5 pp. If the impact of restrictive measures is much weaker than in the baseline scenario, Belarus’ economy may grow, according to EDB calculations, by around 2% in 2021. Under this scenario, GDP growth in Belarus in 2022 will slow to 0.5-1% “due to limited growth potential”.

PrimePress Business Analysis Agency

2021-07-29

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