2012-10-12 05:26:56 - New Country Reports market report from Business Monitor International: "Belarus Business Forecast Report Q4 2012"

Core Views The Belarusian economy is expected to grow at a subdued pace over the next few quarters as the effects of last year's financial crisis continue to be felt. While nascent signs of economic stabilisation have begun to be seen, and exports should perform strongly on the back of the ruble devaluation in 2011, we see little scope for a robust recovery in household demand and business investment. Our core view is also for authorities to maintain tight policy in order to help continue bringing down consumer price inflation. Inflation has turned a corner since the start of the year, falling back into double-digit territory, and as the effects of last year's currency devaluation ease and credit conditions remain

tight, we expect inflationary pressures to continue abating over the rest of 2012. On the external front, we expect the current account to continue narrowing over the course of 2012 as exports volumes are supported by the weakened ruble, and imports are restrained by weak domestic demand and more favourable energy price agreements with Russia. Our long-held view that Belarus would move politically closer towards Russia, in line with its increasing economic dependence on its larger neighbour, has continued to play out in recent months, with Russian President Vladimir Putin voicing support for Belarus as it resists EU pressure to end its crackdown on opposition groups and the independent media. While a gradual thawing of relations with the EU can not be ruled out, it would require Belarusian President Alexander Lukashenko to pursue piecemeal political liberalisation, which remains doubtful given that the economy remains weak and parliamentary elections are to be held by September 2012. Major Forecast Changes There are no major forecast changes this quarter. Key Risks To Outlook The biggest risk to Belarus's medium-term growth trajectory 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 can not 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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