Belarus's economy will exit from recession in 2017, with a modestcyclical upswing taking hold driven largely by improving externaldemand from Russia and recovering energy prices. Domestic demandwill remain lacklustre, as elevated inflation weighs on privateconsumption and fixed investment is limited by a lack of structuralreforms.
Belarus's economic outlook is heavily reliant on Russia's economy,and given the ongoing recovery in the latter, we expect real GDPgrowth in Belarus to concomitantly pick up.
Given the sizeable contribution of refined petroleum products toBelarus's manufacturing sector, industrial production is also likely toreceive a boost in the quarters ahead from recovering global energyprices and an end to the dispute over gas and oil supplies betweenBelarus and Russia.
Private consumption is likely to be hampered by still elevated ratesof inflation, which is eating into real wage growth.Our expectations for weak levels of fixed investment in Belarus inthe years ahead will translate into a lack of productivity gains, weighingon both the near-term growth outlook and medium to long-termgrowth potential.
The Zapad 2017 joint military exercise involving Russia and Belarusfrom 14-20 September in Belarus, and several other locations, suggeststhat Minsk will continue gravitating towards Moscow at theexpense of improving relations with the West.
Concerns will be raised by in Belarus regarding Russia's objectives,including the possibility that Russian troops and military equipmentmay remain in Belarus.
Eventually, Russia could either seek to bring Belarus further underits control, or use its military foothold in the country to launch destabilisingoperations against a neighbouring state.
Major Forecast Changes
Robust Q217 economic growth data in Russia has led up to reviseupwards our real GDP forecast for Belarus, and we now expect theeconomy to expand by 1.0% in 2017 and 1.5% in 2018, whereas wehad previously forecasted growth of 0.1% and 1.4% respectively.