ANALYSIS: Belarus’ highly uncertain economic environment exacerbated by increasing threat of sanctions

Monthly overview of Belarus’ real economy sector, Jan-May 2021 MINSK, Jun 29 – PrimePress. Belarus’ domestic political crisis, which has created a high level of uncertainty in the economic environment, mistrust in the legal system, negative expectations of economic actors and a number of other problems, including a sharp acceleration in inflation processes, has recently been exacerbated by increasing sanctions threats and growing dependence on Russia. At the same time, despite unfavourable long-term factors, Belarus’ economy has shown an accelerated growth rate this year, which so far overfulfills even the government’s forecasts. This is largely due to last year’s low comparative base affected by the pandemic, as well as favourable pricing conditions in the external markets for oil and oil products, as well as potash fertilisers. In other words, the growth acceleration is due to factors outside the influence of the Belarusian government. Table 1. Key indicators of Belarus’ macroeconomic performance: <table border="1" cellspacing="1" cellpadding="0"> <tbody> <tr> <td> Indicator </td> <td> Real figures, Jan-May 2021, billion Belarusian rubles </td> <td> Jan-May 2021 on Jan-May 2020, % </td> <td> Official forecast for 2021, % </td> </tr> <tr> <td> GDP </td> <td> 63.563 </td> <td> +3.1% </td> <td> +1.8% (+0.5% in H1) </td> </tr> <tr> <td> Industrial output </td> <td> 58.457 </td> <td> +11.1% </td> <td> no forecast </td> </tr> <tr> <td> Fixed capital investments </td> <td> 10.053 (15.8% of GDP) </td> <td> minus 10.4% </td> <td> 21.3-21.7% of GDP </td> </tr> <tr> <td> Inflation growth since early 2021, % </td> <td> 5.2* </td> <td> 9.4 (May 2021 on May 2020) </td> <td> 5% at most </td> </tr> <tr> <td> Foreign trade balance (goods and services), USD million </td> <td> +916.0** </td> <td> +361.4** </td> <td> no forecast </td> </tr> <tr> <td> Real disposable household incomes, year on year, % </td> <td> +3.4** </td> <td> +5.7*** </td> <td> +1.6% (+1.8% in H1) </td> </tr> </tbody> </table> * year to date ** Jan-Apr 2021 *** Jan-Apr 2020 Economy gaining pace amid worsening economic expectations The National Statistical Committee of Belarus (Belstat) registered an acceleration in the country’s GDP growth in January-May 2021. During that period, the main gross indicator of Belarus’ economy increased by 3.1% year on year to Br63.563 billion. Prior to that, the Belarusian GDP showed a comparable growth rate in 2018. In 2019 the positive dynamics of the economy has worsened considerably and in 2020 it even moved into negative territory - in January-May 2020 there was a 1.8% decline in GDP. According to Belstat, this year’s major drivers of economic growth were industry (positive contribution to GDP - 2.9%, while overall GDP growth stands at 3.1%), information and communication (+0.5%), and wholesale and retail trade (including car and motorbike repair services - +0.4%). Construction made the biggest negative contribution to GDP in Jan-May 2021 (minus 0.8%). According to Belstat, in January-May 2020, the outsiders of the Belarusian economy were industry (negative contribution to GDP of 1.1%, with overall GDP decline standing at 1.8%), transport, storage, mail and courier services (minus 0.5%), and wholesale and retail trade (including car and motorbike repair services - minus 0.4%). Positive contribution to GDP was generated by information and communication (+0.7%), construction (+0.4%), as well as agriculture, forestry and fishing (+0.1%). Thus, we can state that this year the GDP has been growing mainly due to those sectors, which slumped last year due to the coronavirus pandemic, as well as problems with energy supplies fr om Russia observed in early 2020. According to Belstat, production of coke and refined petroleum products increased by 25.8% year on year in January-May 2021 to Br7.669 billion, chemical products - by 20.3% to Br5.137 billion. In terms of individual products it is worth mentioning motor gasoline (+34.2% yoy in January-May 2021), diesel fuel (+23.9%), fuel oil (+47%), potash fertilizers (+32.6%). On the whole, industrial production increased by 11.1% year on year in January-May 2021 to Br58.457 billion. At the same time, positive dynamics was observed in almost all industries (see Table 2). Table 2: Indices of industrial production by economic activity, period 2021 on period 2020 <table cellspacing="0" cellpadding="0"> <tbody> <tr> <td rowspan="2"> </td> <td rowspan="2"> Jan </td> <td rowspan="2"> Jan-Feb </td> <td rowspan="2"> Jan-Mar </td> <td rowspan="2"> Jan -Apr </td> <td rowspan="2"> Jan-May </td> <td> </td> </tr> <tr> <td> </td> </tr> <tr> <td> Industry – total </td> <td> 108.5 </td> <td> 108.3 </td> <td> 109.2 </td> <td> 111 </td> <td> 111.1 </td> <td> </td> </tr> <tr> <td> Mining industry </td> <td> 98.9 </td> <td> 98.4 </td> <td> 98.3 </td> <td> 99.5 </td> <td> 99.8 </td> <td> </td> </tr> <tr> <td> Processing industry </td> <td> 108.2 </td> <td> 107.5 </td> <td> 109 </td> <td> 111.3 </td> <td> 111.5 </td> <td> </td> </tr> <tr> <td> Food, beverage and tobacco production </td> <td> 98.1 </td> <td> 99.7 </td> <td> 101.6 </td> <td> 103 </td> <td> 102.7 </td> <td> </td> </tr> <tr> <td> Manufacture of textiles, clothing, leather goods and fur </td> <td> 96.3 </td> <td> 98 </td> <td> 98.7 </td> <td> 102.5 </td> <td> 105.8 </td> <td> </td> </tr> <tr> <td> Manufacture of wood and paper products; printing activities and duplication of recorded media </td> <td> 102.1 </td> <td> 100.6 </td> <td> 103.4 </td> <td> 106 </td> <td> 109.7 </td> <td> </td> </tr> <tr> <td> Production of coke and refined petroleum products </td> <td> 133.9 </td> <td> 144.1 </td> <td> 147.1 </td> <td> 133.4 </td> <td> 125.8 </td> <td> </td> </tr> <tr> <td> Manufacture of chemical products </td> <td> 138.6 </td> <td> 130 </td> <td> 124.2 </td> <td> 124.5 </td> <td> 120.3 </td> <td> </td> </tr> <tr> <td> Production of essential pharmaceutical products and pharmaceutical preparations </td> <td> 127.7 </td> <td> 128.6 </td> <td> 113.9 </td> <td> 106.4 </td> <td> 108 </td> <td> </td> </tr> <tr> <td> Manufacture of rubber and plastic products, other non-metallic mineral products </td> <td> 91.1 </td> <td> 92.5 </td> <td> 94.6 </td> <td> 98.4 </td> <td> 99.7 </td> <td> </td> </tr> <tr> <td> Metallurgical production, manufacture of fabricated metal products, except machinery and equipment </td> <td> 95.7 </td> <td> 87.5 </td> <td> 104.6 </td> <td> 107.9 </td> <td> 109.1 </td> <td> </td> </tr> <tr> <td> Manufacturing of computing, electronic and optical equipment </td> <td> 129.8 </td> <td> 112 </td> <td> 114.7 </td> <td> 126.5 </td> <td> 125.9 </td> <td> </td> </tr> <tr> <td> Manufacture of electrical equipment </td> <td> 115 </td> <td> 112.2 </td> <td> 111.4 </td> <td> 114.5 </td> <td> 117.1 </td> <td> </td> </tr> <tr> <td> Manufacture of machinery and equipment not included in other groups </td> <td> 115.5 </td> <td> 115.6 </td> <td> 117.8 </td> <td> 121.1 </td> <td> 122.2 </td> <td> </td> </tr> <tr> <td> Production of vehicles and equipment </td> <td> 98.1 </td> <td> 106.7 </td> <td> 104 </td> <td> 109.8 </td> <td> 113.1 </td> <td> </td> </tr> <tr> <td> Manufacture of other finished goods; repair, installation of machinery and equipment </td> <td> 102.2 </td> <td> 102.2 </td> <td> 108.6 </td> <td> 117.9 </td> <td> 120.4 </td> <td> </td> </tr> <tr> <td> Supply of electricity, gas, steam, hot water and air conditioning </td> <td> 113.4 </td> <td> 115.9 </td> <td> 113.8 </td> <td> 112.7 </td> <td> 112.8 </td> <td> </td> </tr> <tr> <td> Water supply, waste collection, treatment and disposal, pollution abatement activities </td> <td> 99.1 </td> <td> 99 </td> <td> 99.4 </td> <td> 101.4 </td> <td> 102.2 </td> <td> </td> </tr> </tbody> </table> <table cellspacing="0" cellpadding="0"> <tbody> <tr> <td> </td> <td> month-on-month acceleration of growth </td> </tr> <tr> <td> </td> <td> month-on-month deceleration of growth </td> </tr> <tr> <td> </td> <td> sustained growth in month-on-month terms </td> </tr> </tbody> </table> The recovery of business activity in Belarus' main trading partners contributes to a decrease in the level of stocks of finished goods at Belarusian industrial enterprises. As of June 1, 2021, they accounted for 59.6% of the average monthly industrial output against 81.4% as of June 1, 2020. In nominal terms, stocks of finished goods in warehouses reached Br5.637 billion as of June 1, 2021, down 1.7% year on year. However, against the backdrop of negative expectations and increasing sanctions pressure, the country’s economic growth remains fragile and exposed to a wide range of risks outside the influence of the Belarusian authorities. The Belarusian government can only influence the economy by administrative methods, which might have been effective during the acute phase of the pandemic, but in the context of the political crisis only aggravates the situation and contributes to a growing deficit of trust in the authorities. Annual inflation continues to accelerate, already well above forecast Consumer prices in May 2021 rose by 5.2% compared to the level of December 2020, with annual target set at 5% by the National Bank. The target has been initially set in the Monetary Policy Guidelines (MPG) for 2021. Now it is officially unachieved because deflation for the remaining 7 months is highly unlikely. It is worth noting that the inflation target of 5% has not been achieved for the second year in a row. At the end of 2020, the annual consumer price index was 7.4% against the 5% target specified in the MGP for 2020. There is a chance that inflation will not return to 5% in 2022. On June 11, Natalia Mironchik, head of the Research and Strategic Development Department of the National Bank, said that “the dynamics of prices are strongly linked to exchange rate movements, and therefore, when there are fluctuations of the exchange rate, it is very quickly transferred to the price growth”. According to Mironchik, “we have an insufficient level of confidence in monetary policy, unstable binding of inflation expectations to the inflation target, high risks of devaluation of the national currency and accelerated inflation”. Mironchik added that “while in previous years low inflation in both developed countries and Russia favoured and contributed to the fact that we could ensure inflation reduction and meet the target of 5%, now the acceleration of inflation processes in trading partner countries makes it difficult for us to implement monetary policy”. Mironchik thinks that “it will be a very difficult choice: either to meet the 5% inflation target but with limited business activity, which may have a negative impact on economic growth, or to maintain acceptable economic growth rates, but then inflation will deviate fr om the target. The current inflation rate is close to 10%. According to Belstat, in May 2021 the annual growth in consumer prices was 9.4%, the highest since January 2017. In May 2021, core inflation, which represents a change in consumer prices excluding government-controlled items and items which are characterised by seasonal price hikes (fruit and vegetables), reached 9.3%. Such high core inflation has not been observed in Belarus since December 2016. Furthermore, despite successive restrictions and bans imposed by the authorities, there has been an acceleration in the government-regulated price index. While in September 2020 this index stood at 5.6% year-on-year, in May 2021 it stood at 9.4%. It is possible that “administrative” inflation will reach 10% in summer or early autumn. Due to the fact that Belarus’ economy is dependent on the Russian economy, inflation in Belarus is determined by the price dynamics in the Russian Federation. Annual inflation in Russia in May 2021 amounted to 6.02%, although back in May 2020, it was 2 times lower - 3.02%. Such significant price increases have not been observed in Russia since October 2016. Core inflation in Russia reached 6.04% as of May 2021 (2.85% in May 2020). Analysts at the Eurasian Development Bank’s (EDB) Chief Economist Group estimate that inflation in Belarus is likely to remain above 9% in the coming months. According to EDB estimates, a significant pro-inflationary impact is caused by rising fuel costs and higher global prices for food, metals and construction materials, likely difficulties in transport and logistics chains, and accelerating price increases in Russia. The EDB believes that against the backdrop of elevated inflationary expectations in the country, the Belarusian ruble reinforcement observed since mid-April, may have a very limited impact on the change in consumer prices. Among factors that may have a restraining effect on the inflation rate in the short run are the National Bank’s artificial restraint of monetary base growth, as well as the “crisis” behavior of private households, which lim it their consumer activity in the environment of uncertainty. Moreover, accelerated inflation restrains the growth of real household incomes, which also has a negative impact on consumer demand. Belarus sees decline in employment The labour market in 2021 is characterised by moderate unemployment in the range of 4-4.5%. Belstat data show that, in contrast to 2015-2016, the 2020 crisis did not lead to a surge in unemployment to 6-7%. It is likely that public-sector enterprises did not make significant staff reductions for administrative reasons. At the same time, one cannot rule out data distortions due to undocumented labour emigration to Europe, the USA and Russia. In the EU and the USA, not every migrant is registered with consulates and receives a RR-series passport. Alternative estimates of the Belarusian authorities show that between 300,000 and 600,000 Belarusian citizens may work in Russia. At the same time, according to Belstat, in Q1 2021 the number of citizens working outside the country (up to 1 year) was 79,200 people. Due to the above circumstances, the unemployment rate in Belarus in 2021 could be higher, up to 5% or more, according to the criteria of the International Labour Organization. It is difficult to give precise estimates due to the lack of official data on external migration. Belstat regularly postpones the publication of this information. It is also worth noting the continuing downward trend in employment in operational records. In April 2021 average employment amounted to 4.289 million people, which is 31,000 persons (or 0.7%) less than in March 2020. This phenomenon may be associated with the dismissal of employees of retirement age in 2020-2021, both due to concerns in the background of the epidemic and for administrative reasons (staff optimization in the public sector). In terms of the number of employees and the ratio of hired and dismissed employees at large and medium-sized enterprises, this year is broadly similar to 2019-2020. The net outflow of personnel fr om the grossly overstaffed enterprises remains. However, another negative trend emerged in 2020. Last year (data is collected every 12 months), the number of employees in small and micro-enterprises decreased. In 2019, the trend was positive: outflows from large enterprises were partially compensated by inflows to small businesses. The data on staff movements in small and micro-enterprises for 2021 will not be available until the first half of 2022 at the earliest. In addition, since March 2021, there has been an increase in accrued wages in dollar terms. This growth is partly due to a slowdown in the devaluation of the Belarusian ruble (and even its appreciation in some periods), and partly to a rather high nominal growth of wages in Belarusian rubles. According to Belstat, in May 2021, the average salary in Belarus amounted to Br1,420, up 1.5% month on month in nominal terms, up 15.2% year on year. Real wages grew by 0.9% month on month in May 2021, and by 5.3% year on year. Based on the average monthly exchange rate calculated by the National Bank, the dollar equivalent of the average wage in May 2021 was $561.2, up from $535.3 in April 2021 and $505.9 in May 2020. When comparing May wages over a number of years, the dollar equivalent of the average wage in May 2021 was the highest since May 2015. The leader among Belarusian regions in terms of wages is traditionally Minsk City, wh ere employees were paid an average of Br2,053.4 in May 2021. Mogilev Oblast is traditionally an outsider with Br1,140.5. Here is a sector-specific ranking of the average wage in May 2021: information and communication - Br5.196 thousand (including subsection "information technology and information services" - Br6,812). The second place is taken by the salaries of workers in the field of air transport with a significant lag - Br2,754. The lowest average salary (in the context of a consolidated type of economic activity) in May this year, Belstat recorded in the field of administrative and support services - Br907,500. Second place went to temporary accommodation and catering services, wh ere the average salary in May amounted to Br932.5. It is worth paying attention to the persistent gap between the real growth rate of labour productivity and the real wage growth rate. According to Belstat, in January-April 2021 labour productivity increased by 3.3%, while the real wage growth stood at 5.9%. A year earlier, the gap was even greater - minus 1.2% vs. +7.8%, respectively. In fact, wage rises are being implemented without taking into account the capacity of the economy. Until 2015, administrative wage increases over long stretches of time without similar productivity increases regularly led to a devaluation of the national currency and a reduction of wages in US dollar terms. If the authorities start abandoning market-based exchange rate elements in the near future, the threats of the first half of the 2010s will quickly return to the labour market agenda. Sanctions threats hanging over Belarusian economy It was announced on 24 June that the EU had approved sectoral sanctions against Belarus, the negative impact of which on the Belarusian economy can be many times higher than the assessed damage voiced by the Belarusian authorities. Despite the fact that the sanctions do not take effect immediately and contain a number of caveats, the envisaged trade restrictions on oil products, potash fertilizers and tobacco products, as well as restricted access to the EU capital markets for the government and state financial institutions, will worsen the already fragile position of Belarus in international markets. A deterioration in foreign trade can be expected, as well as a decline in the country's GDP growth rate. Overall, the situation in the Belarusian economy has remained unchanged in recent months. The authorities report an improvement in gross output, preferring to remain silent about the low comparative base of the previous year. At the same time, no new drivers of economic growth are observed. The political component of the country’s life, characterised by the authorities’ attempts to assert themselves above all in their own eyes, is still at the top of the agenda. Against this background, negative expectations of economic actors continue to grow, administrative pressure on enterprises and interference by the authorities in market mechanisms are on the rise. PrimePress Business Analysis Agency

2021-06-30

Primepress

Primepress ltd

220074

Belarus

Minsk

+37529184 06 73

primepress.by

ANALYSIS: Belarus’ highly uncertain economic environment exacerbated by increasing threat of sanctions

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

MINSK, Jun 29 – PrimePress. Belarus’ domestic political crisis, which has created a high level of uncertainty in the economic environment, mistrust in the legal system, negative expectations of economic actors and a number of other problems, including a sharp acceleration in inflation processes, has recently been exacerbated by increasing sanctions threats and growing dependence on Russia.

At the same time, despite unfavourable long-term factors, Belarus’ economy has shown an accelerated growth rate this year, which so far overfulfills even the government’s forecasts. This is largely due to last year’s low comparative base affected by the pandemic, as well as favourable pricing conditions in the external markets for oil and oil products, as well as potash fertilisers. In other words, the growth acceleration is due to factors outside the influence of the Belarusian government.

Table 1. Key indicators of Belarus’ macroeconomic performance:

Indicator	Real figures, Jan-May 2021, billion Belarusian rubles	Jan-May 2021 on Jan-May 2020, %	Official forecast for 2021, %
GDP	63.563	+3.1%	+1.8% (+0.5% in H1)
Industrial output	58.457	+11.1%	no forecast
Fixed capital investments	10.053 (15.8% of GDP)	minus 10.4%	21.3-21.7% of GDP
Inflation growth since early 2021, %	5.2*	9.4 (May 2021 on May 2020)	5% at most
Foreign trade balance (goods and services), USD million	+916.0**	+361.4**	no forecast
Real disposable household incomes, year on year, %	+3.4**	+5.7***	+1.6% (+1.8% in H1)

* year to date

** Jan-Apr 2021

*** Jan-Apr 2020

Economy gaining pace amid worsening economic expectations

The National Statistical Committee of Belarus (Belstat) registered an acceleration in the country’s GDP growth in January-May 2021. During that period, the main gross indicator of Belarus’ economy increased by 3.1% year on year to Br63.563 billion. Prior to that, the Belarusian GDP showed a comparable growth rate in 2018.

In 2019 the positive dynamics of the economy has worsened considerably and in 2020 it even moved into negative territory - in January-May 2020 there was a 1.8% decline in GDP.

According to Belstat, this year’s major drivers of economic growth were industry (positive contribution to GDP - 2.9%, while overall GDP growth stands at 3.1%), information and communication (+0.5%), and wholesale and retail trade (including car and motorbike repair services - +0.4%). Construction made the biggest negative contribution to GDP in Jan-May 2021 (minus 0.8%).

According to Belstat, in January-May 2020, the outsiders of the Belarusian economy were industry (negative contribution to GDP of 1.1%, with overall GDP decline standing at 1.8%), transport, storage, mail and courier services (minus 0.5%), and wholesale and retail trade (including car and motorbike repair services - minus 0.4%). Positive contribution to GDP was generated by information and communication (+0.7%), construction (+0.4%), as well as agriculture, forestry and fishing (+0.1%).

Thus, we can state that this year the GDP has been growing mainly due to those sectors, which slumped last year due to the coronavirus pandemic, as well as problems with energy supplies fr om Russia observed in early 2020.

According to Belstat, production of coke and refined petroleum products increased by 25.8% year on year in January-May 2021 to Br7.669 billion, chemical products - by 20.3% to Br5.137 billion.

In terms of individual products it is worth mentioning motor gasoline (+34.2% yoy in January-May 2021), diesel fuel (+23.9%), fuel oil (+47%), potash fertilizers (+32.6%).

On the whole, industrial production increased by 11.1% year on year in January-May 2021 to Br58.457 billion. At the same time, positive dynamics was observed in almost all industries (see Table 2).

Table 2: Indices of industrial production by economic activity, period 2021 on period 2020

	Jan	Jan-Feb	Jan-Mar	Jan -Apr	Jan-May
	Jan	Jan-Feb	Jan-Mar	Jan -Apr	Jan-May
Industry – total	108.5	108.3	109.2	111	111.1
Mining industry	98.9	98.4	98.3	99.5	99.8
Processing industry	108.2	107.5	109	111.3	111.5
Food, beverage and tobacco production	98.1	99.7	101.6	103	102.7
Manufacture of textiles, clothing, leather goods and fur	96.3	98	98.7	102.5	105.8
Manufacture of wood and paper products; printing activities and duplication of recorded media	102.1	100.6	103.4	106	109.7
Production of coke and refined petroleum products	133.9	144.1	147.1	133.4	125.8
Manufacture of chemical products	138.6	130	124.2	124.5	120.3
Production of essential pharmaceutical products and pharmaceutical preparations	127.7	128.6	113.9	106.4	108
Manufacture of rubber and plastic products, other non-metallic mineral products	91.1	92.5	94.6	98.4	99.7
Metallurgical production, manufacture of fabricated metal products, except machinery and equipment	95.7	87.5	104.6	107.9	109.1
Manufacturing of computing, electronic and optical equipment	129.8	112	114.7	126.5	125.9
Manufacture of electrical equipment	115	112.2	111.4	114.5	117.1
Manufacture of machinery and equipment not included in other groups	115.5	115.6	117.8	121.1	122.2
Production of vehicles and equipment	98.1	106.7	104	109.8	113.1
Manufacture of other finished goods; repair, installation of machinery and equipment	102.2	102.2	108.6	117.9	120.4
Supply of electricity, gas, steam, hot water and air conditioning	113.4	115.9	113.8	112.7	112.8
Water supply, waste collection, treatment and disposal, pollution abatement activities	99.1	99	99.4	101.4	102.2

	month-on-month acceleration of growth
	month-on-month deceleration of growth
	sustained growth in month-on-month terms

The recovery of business activity in Belarus' main trading partners contributes to a decrease in the level of stocks of finished goods at Belarusian industrial enterprises. As of June 1, 2021, they accounted for 59.6% of the average monthly industrial output against 81.4% as of June 1, 2020.

In nominal terms, stocks of finished goods in warehouses reached Br5.637 billion as of June 1, 2021, down 1.7% year on year.

However, against the backdrop of negative expectations and increasing sanctions pressure, the country’s economic growth remains fragile and exposed to a wide range of risks outside the influence of the Belarusian authorities. The Belarusian government can only influence the economy by administrative methods, which might have been effective during the acute phase of the pandemic, but in the context of the political crisis only aggravates the situation and contributes to a growing deficit of trust in the authorities.

Annual inflation continues to accelerate, already well above forecast

Consumer prices in May 2021 rose by 5.2% compared to the level of December 2020, with annual target set at 5% by the National Bank. The target has been initially set in the Monetary Policy Guidelines (MPG) for 2021. Now it is officially unachieved because deflation for the remaining 7 months is highly unlikely.

It is worth noting that the inflation target of 5% has not been achieved for the second year in a row. At the end of 2020, the annual consumer price index was 7.4% against the 5% target specified in the MGP for 2020.

There is a chance that inflation will not return to 5% in 2022. On June 11, Natalia Mironchik, head of the Research and Strategic Development Department of the National Bank, said that “the dynamics of prices are strongly linked to exchange rate movements, and therefore, when there are fluctuations of the exchange rate, it is very quickly transferred to the price growth”.

According to Mironchik, “we have an insufficient level of confidence in monetary policy, unstable binding of inflation expectations to the inflation target, high risks of devaluation of the national currency and accelerated inflation”. Mironchik added that “while in previous years low inflation in both developed countries and Russia favoured and contributed to the fact that we could ensure inflation reduction and meet the target of 5%, now the acceleration of inflation processes in trading partner countries makes it difficult for us to implement monetary policy”.

Mironchik thinks that “it will be a very difficult choice: either to meet the 5% inflation target but with limited business activity, which may have a negative impact on economic growth, or to maintain acceptable economic growth rates, but then inflation will deviate fr om the target.

The current inflation rate is close to 10%. According to Belstat, in May 2021 the annual growth in consumer prices was 9.4%, the highest since January 2017.

In May 2021, core inflation, which represents a change in consumer prices excluding government-controlled items and items which are characterised by seasonal price hikes (fruit and vegetables), reached 9.3%. Such high core inflation has not been observed in Belarus since December 2016.

Furthermore, despite successive restrictions and bans imposed by the authorities, there has been an acceleration in the government-regulated price index. While in September 2020 this index stood at 5.6% year-on-year, in May 2021 it stood at 9.4%. It is possible that “administrative” inflation will reach 10% in summer or early autumn.

Due to the fact that Belarus’ economy is dependent on the Russian economy, inflation in Belarus is determined by the price dynamics in the Russian Federation. Annual inflation in Russia in May 2021 amounted to 6.02%, although back in May 2020, it was 2 times lower - 3.02%. Such significant price increases have not been observed in Russia since October 2016. Core inflation in Russia reached 6.04% as of May 2021 (2.85% in May 2020).

Analysts at the Eurasian Development Bank’s (EDB) Chief Economist Group estimate that inflation in Belarus is likely to remain above 9% in the coming months. According to EDB estimates, a significant pro-inflationary impact is caused by rising fuel costs and higher global prices for food, metals and construction materials, likely difficulties in transport and logistics chains, and accelerating price increases in Russia. The EDB believes that against the backdrop of elevated inflationary expectations in the country, the Belarusian ruble reinforcement observed since mid-April, may have a very limited impact on the change in consumer prices.

Among factors that may have a restraining effect on the inflation rate in the short run are the National Bank’s artificial restraint of monetary base growth, as well as the “crisis” behavior of private households, which lim it their consumer activity in the environment of uncertainty. Moreover, accelerated inflation restrains the growth of real household incomes, which also has a negative impact on consumer demand.

Belarus sees decline in employment

The labour market in 2021 is characterised by moderate unemployment in the range of 4-4.5%. Belstat data show that, in contrast to 2015-2016, the 2020 crisis did not lead to a surge in unemployment to 6-7%. It is likely that public-sector enterprises did not make significant staff reductions for administrative reasons.

At the same time, one cannot rule out data distortions due to undocumented labour emigration to Europe, the USA and Russia. In the EU and the USA, not every migrant is registered with consulates and receives a RR-series passport. Alternative estimates of the Belarusian authorities show that between 300,000 and 600,000 Belarusian citizens may work in Russia. At the same time, according to Belstat, in Q1 2021 the number of citizens working outside the country (up to 1 year) was 79,200 people.

Due to the above circumstances, the unemployment rate in Belarus in 2021 could be higher, up to 5% or more, according to the criteria of the International Labour Organization. It is difficult to give precise estimates due to the lack of official data on external migration. Belstat regularly postpones the publication of this information.

It is also worth noting the continuing downward trend in employment in operational records. In April 2021 average employment amounted to 4.289 million people, which is 31,000 persons (or 0.7%) less than in March 2020. This phenomenon may be associated with the dismissal of employees of retirement age in 2020-2021, both due to concerns in the background of the epidemic and for administrative reasons (staff optimization in the public sector).

In terms of the number of employees and the ratio of hired and dismissed employees at large and medium-sized enterprises, this year is broadly similar to 2019-2020. The net outflow of personnel fr om the grossly overstaffed enterprises remains. However, another negative trend emerged in 2020. Last year (data is collected every 12 months), the number of employees in small and micro-enterprises decreased.

In 2019, the trend was positive: outflows from large enterprises were partially compensated by inflows to small businesses. The data on staff movements in small and micro-enterprises for 2021 will not be available until the first half of 2022 at the earliest.

In addition, since March 2021, there has been an increase in accrued wages in dollar terms. This growth is partly due to a slowdown in the devaluation of the Belarusian ruble (and even its appreciation in some periods), and partly to a rather high nominal growth of wages in Belarusian rubles.

According to Belstat, in May 2021, the average salary in Belarus amounted to Br1,420, up 1.5% month on month in nominal terms, up 15.2% year on year. Real wages grew by 0.9% month on month in May 2021, and by 5.3% year on year.

Based on the average monthly exchange rate calculated by the National Bank, the dollar equivalent of the average wage in May 2021 was $561.2, up from $535.3 in April 2021 and $505.9 in May 2020. When comparing May wages over a number of years, the dollar equivalent of the average wage in May 2021 was the highest since May 2015.

The leader among Belarusian regions in terms of wages is traditionally Minsk City, wh ere employees were paid an average of Br2,053.4 in May 2021. Mogilev Oblast is traditionally an outsider with Br1,140.5.

Here is a sector-specific ranking of the average wage in May 2021: information and communication - Br5.196 thousand (including subsection "information technology and information services" - Br6,812). The second place is taken by the salaries of workers in the field of air transport with a significant lag - Br2,754.

The lowest average salary (in the context of a consolidated type of economic activity) in May this year, Belstat recorded in the field of administrative and support services - Br907,500. Second place went to temporary accommodation and catering services, wh ere the average salary in May amounted to Br932.5.

It is worth paying attention to the persistent gap between the real growth rate of labour productivity and the real wage growth rate. According to Belstat, in January-April 2021 labour productivity increased by 3.3%, while the real wage growth stood at 5.9%. A year earlier, the gap was even greater - minus 1.2% vs. +7.8%, respectively. In fact, wage rises are being implemented without taking into account the capacity of the economy.

Until 2015, administrative wage increases over long stretches of time without similar productivity increases regularly led to a devaluation of the national currency and a reduction of wages in US dollar terms. If the authorities start abandoning market-based exchange rate elements in the near future, the threats of the first half of the 2010s will quickly return to the labour market agenda.

Sanctions threats hanging over Belarusian economy

It was announced on 24 June that the EU had approved sectoral sanctions against Belarus, the negative impact of which on the Belarusian economy can be many times higher than the assessed damage voiced by the Belarusian authorities.

Despite the fact that the sanctions do not take effect immediately and contain a number of caveats, the envisaged trade restrictions on oil products, potash fertilizers and tobacco products, as well as restricted access to the EU capital markets for the government and state financial institutions, will worsen the already fragile position of Belarus in international markets. A deterioration in foreign trade can be expected, as well as a decline in the country's GDP growth rate.

Overall, the situation in the Belarusian economy has remained unchanged in recent months. The authorities report an improvement in gross output, preferring to remain silent about the low comparative base of the previous year. At the same time, no new drivers of economic growth are observed. The political component of the country’s life, characterised by the authorities’ attempts to assert themselves above all in their own eyes, is still at the top of the agenda.

Against this background, negative expectations of economic actors continue to grow, administrative pressure on enterprises and interference by the authorities in market mechanisms are on the rise.

PrimePress Business Analysis Agency

2021-06-30

Возврат к списку