Economic recovery in Belarus continues (monthly overview of Belarus’ real economy, January-November 2017)
MINSK - Belarus’ economy keeps demonstrating signs of recovery. The pace of GDP growth happens to exceed the target in late 2017, with inflation dropping to an all-time low. Real household incomes are finally out of the red zone.
At the same time, experts point out lingering negative trends in foreign trade, warehouse inventories are one the rise, with wage levels failing to reach the target set by the authorities.
Industries recovering breadwinner status
The gross domestic product (GDP) keeps growing steadily. Belarus’ National Statistics Committee (Belstat) says the country’s GDP grew by 2.2% on the year in January-November 2017 to Br96.112 billion (to compare with 2% in Jan-Oct, and 1.7% in Jan-Sep). In accordance with the government’s original forecast, annual GDP growth in 2017 was supposed to reach 1.7%.
The Belarusian economy’s Gross Added Value (GAV) grew 2.1% in Jan-Nov 2017 to Br83.254 billion, and net taxes on products (net direct taxes) – up 3% to Br12.858 billion.
As far as GAV is concerned, processing industries keep playing a key role (21.8% of GDP in Jan-Nov 2017 vs 19.6% in Jan-Nov 2016). Processing industries’ GAV totaled Br20.951bn in current prices, up 6.9% year on year.
The accelerated growth of industrial output, especially in H2 2017, is largely due to low comparative benchmarks of H2 2016. In Q3 2016 Russia would cut crude supplies to Belarusian oil refineries, which affected both the financial performance of the latter, and macroeconomic performance of Belarus as a whole.
The recovery of crude oil supplies against the background of low comparative benchmarks of H2 2016 has been helping Belarus accelerate growth in industry at the expense of oil refining. Belstat says production of coke and oil products grew 36.3% year on year in Nov 2017, while in Nov 2016 it fell 41.1% year on year.
The positive statistics is somewhat overshadowed by the ratio of warehouse inventories and industrial output, which has been growing for 3 months in a row: warehouse inventories of finished products accounted for 61.9% of the average monthly output as of Dec 1, 2017, to compare with 60.6% as Nov 1 and 59.4% as of Oct 1, 2017. At the same time, warehouse inventories dropped by 6.9 percentage points year on year as of Dec 1, 2017.
Wholesale and retail trade and car repair services were Belarus’ second biggest breadwinner in GAV terms in Jan-Nov 2017: their GAV accounted for 9.5% of GDP (10.9% in Jan-Nov 2016) or Br9.123 billion in current prices, up 2.8% year on year.
Agriculture, forest farming and fishery hold the third position: GAV totaled Br7.797bn in current prices (or 8.1% of GDP, to compare with 6.8% in Jan-Nov 2016), up 5.1% year on year.
Inflation: accelerated growth of administered prices
Inspired by all-time low inflation figures, Belarus’ authorities at the year’s end chose to raise certain administered prices and tariffs.
“As a result of administering prices and tariffs (utility tariffs, minimum price of alcoholic beverages with alcohol content exceeding 28%, municipal transport tariffs), the annual increase in administered prices and tariffs accelerated from 8.6% in October 2017 to 8.9% in November 2017,” the National Bank of Belarus said in its monthly analytical report.
Belstat says Belarus saw 0.5% inflation in November 2017, although October saw the highest month-on-month inflation (1.2%) since early 2017. Belarus’ prices of consumer goods and services grew 4.4% in Jan-Nov 2017, while the official forecast for the whole of 2017 stands at 9%.
Belarus’ core CPI (does not depend on variables, especially seasonal factors and administratively-controlled price-formation) stood at 3% in Nov 2017, to compare with 3.4% in Oct 2017.
Annual trend inflation (a medium-term inflation indicator cleared from the influence of various shocks) slowed down in year-on-year terms from 3.7% in October to 3.2% in November. The average pace of growth of consumer prices in tariffs stood at 3.4% in Nov 2017, to compare with 3.6% in Oct 2016.
It is worth mentioning that the National Bank in November 2017 announced the launch of quarterly reports tracking people’s inflationary expectations.
The National Bank’s November analysis of people’s inflationary expectations says that their perception of inflation growth in 2017 stands at 12.9%. The analysis is based on the findings of a public opinion poll conducted in Nov 2017. 51.8% of those interviewed believe that consumer prices have grown extremely high since early 2017. As for the forecast for the next 12 months, 60.8% said consumer prices will keep growing at the same pace. The majority of Belarus’ people expect consumer prices to grow by 11.9% year on year in 2017, the NBB poll says.
Wages wouldn’t grow despite administrative pressure
It still remains a tough challenge for the authorities to push the average monthly wage to Br1,000 (or $500) by the end of the year. Despite administrative pressure, the average wage is nowhere near the target and is on the decline.
Belstat says Belarus’ average wage in nominal terms reached 836.9 Belarusian rubles in November 2017, down 0.5% month on month.
In real terms [adjusted for the increase in consumer prices], the average monthly wage reduced by 1% month on month in November 2017, and grew by 10.7% year on year. November’s average wage was still lower than August’s.
In dollar terms, November’s average wage stood at U.S. $419.6 (at the monthly average rate of the National Bank), down 2% month on month. Compared to the level of November 2016, the average wage grew 13.3% or by $49.2.
Hence, in order to reach the $500 wage target, December’s average wage is supposed to grow by as much as 19.5% or Br163.1 (by 19.1% or $80.4 in dollar terms).
The reinforcement of the Belarusian currency, which occurred in early December, may help the authorities get closer to the target, however the only real way of meeting the $500 wage target could only be done by means of paying large end-of-year bonuses and different sorts of manipulations and only for a short period.
Foreign trade balance secures footholds in red zone
Belarus’ foreign trade surplus totalled $584.7 million in Jan-Oct 2017, compared to a $293.3 million surplus in Jan-Oct 2016, the National Bank said in an online report.
The overall turnover of commodities and services in foreign trade grew 19.6% on the year in Jan-Oct 2017 to $58.49 billion. Exports of commodities and services grew 20.1% year on year to $29.537 billion, and imports grew 19.2% to $28.952 billion.
At the same time, in October alone Belarus produced a foreign trade deficit in the amount of $72.7 million to compare with a $35.9m deficit in September 2017 and a $189.2m deficit in October 2016.
Foreign trade in goods is traditionally regarded as the ball and chain on the feet of Belarus’ foreign trade. According to the NBB, the deficit of foreign trade in goods totalled $1.902 billion in Jan-Oct 2017 compared to a deficit of $1.717 billion in Jan-Oct 2016. Commodity exports (in FOB prices) grew 22.4% on the year in Jan-Oct 2017 to $23.241 billion; imports up 21.5% to $25.142 billion.
The key commodities, which facilitates an increase in Belarus’ imports in Jan-Oct 2017, are crude oil and gas condensate (+$769.4m, or a 22.2% year-on-year increase in value terms), oil products (+$417.5m, or a 94.7% year-on-year increase in value terms), natural gas (+$232.3m, or plus 11.7%), ferrous metal scrap (+$109.1m, or plus 53.4%), liquefied gas (+$87.4m, or a 2.4-fold increase).
The selection of major import commodities is another reminder about the Belarusian economy’s extreme dependence on Russia, as the aforementioned products are almost entirely supplied to Belarus from Russia.
Belarus’ key export commodities in Jan-Oct 2017 were petroleum products (+$716.6m, or up 20.5% year on year in value terms), trucks (+$336.1m, or +69.3%), bitumen mixtures (+$274m, up 7.1 times in value terms), potash fertilizers (+$205.4m, or +12.5%), butter (+$130m, or +50.1%).
Belarus’ foreign trade demonstrates a sustained geographic focus and an extreme dependence on Russia in terms of supplies of energy resources. Despite the government’s rhetoric about the necessity to diversity exports and sources of energy supplies, the situation will hardly change for the better in the foreseeable future.
Experts admit Belarus’ progress, but warn about risks
The International Monetary Fund (IMF) on Dec 19, 2017 issued a press-release to conclude the Fund’s Article IV consultation with Belarus, in which IMF analysts welcomed the improvement in macroeconomic and financial policies over the last two and a half years, but also emphasized lingering risks.
“Executive Directors welcomed the improvement in macroeconomic and financial policies over the last two and a half years. Directors recognized that these policies have helped to support the economic recovery, along with a more favorable external environment. However, they emphasized that vulnerabilities remain high and further efforts are needed, including addressing structural weaknesses. In this context, continued active engagement between the Fund and the Belarusian authorities is important,” reads the IMF press-release.
IMF directors encouraged the authorities to use the economic recovery to implement deeper, faster reforms in the real sector to increase productivity, raise growth, and boost the economy’s resilience to shocks. To help achieve this, they saw a critical need to reform the state-owned enterprise (SOE) sector. Directors also stressed the need to implement measures to improve labor and product markets to remove impediments to private sector growth. The efficiency of social safety nets should also be enhanced to cushion the impact of reforms on vulnerable social groups. Directors noted that wage increases should be consistent with productivity growth.