2012-11-14 22:12:57 - Belarus Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com

Exports are set to remain the major driver of growth in light of the severely weakened currency, while household demand and corporate investment are likely to struggle over the next few quarters. As it stands, we believe the government´s growth forecasts of 5.5% this year, rising to 8.5% in 2013, are overly ambitious and will not be met, not only as a result of the knock-on effects of 2011´s economic crisis, but also given the relatively fragile global growth picture. We believe that economic growth will remain positive this year, but at 3.6% will nonetheless represent a major slowdown on 2010 and 2011 growth.

We anticipate consumer price inflation to continue falling over the next few months, hitting 30% by the

 

 

end of the year, and 15% by end-2013. While the central bank has been lowering the refinancing rate, the recent decision to raise reserve requirements on foreign currency borrowing signals monetary authorities´ continued intent to rein in inflationary pressures. On the external front, the current account has flipped back into surplus territory in the past couple of quarters, and we expect a continued widening of the surplus owing to weak domestic demand, robust export growth and lower energy prices.

We expect upcoming parliamentary elections to yield no change to the political status quo. That said, we do see scope for further domestic protests, similar to those witnessed in the aftermath of presidential elections in December 2010. On the foreign policy front, the recent diplomatic spat with Sweden has only further cemented Belarus´s political isolation from the EU. This is likely to result in a continued shift towards Russia, both economically and politically, which presents huge risks to Belarus´s long-term economic potential.

Major Forecast Changes

On the back of a greater than anticipated adjustment in Belarus´s external accounts, we have revised our current account forecasts for the next couple of years. We now forecast a full-year surplus equivalent to 0.6% of GDP in 2012 and 1.5% in 2013, having previously envisaged deficits of 2.4% and 1.1% respectively.

Key Risks To Outlook

Economic Risk: The biggest risk to Belarus´s medium-term growth trajectory still stems from government and central bank policy. While our core view is for policy to remain broadly tight in order to help combat inflationary pressures, we cannot rule out authorities pursuing a more expansionary policy in order to boost economic growth this year and mitigate any domestic political risks stemming from lacklustre economic activity. This policy course could end up reigniting inflationary concerns and currency instability further down the line, thereby sacrificing future growth for near-term gains.

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