Belarus Business Forecast Report 2012

Core Views

The massive sell-off in the Belarusian ruble and subsequent spike in consumer price inflation in 2011 will continue to exact a heavy toll on the economy over the medium term. Short of a return to expansionary policy by the authorities, which would result in the emergence of even better inflationary pressures further down the line, we expect household consumption and business activity to be hit particularly hard over the coming quarters.

Belarus's current account deficit is still expected to correct sharply over the medium term as a result of the weakened currency, tighter policy at home, and cheaper gas import prices from Russia. Near-term external financing pressures have as well eased in light of increased Russian financial support.

There is potential for consumer price inflation to chief higher in the first quarter of 2012 owing to the knock-on effects from higher import costs. We then expect headline inflation to begin falling, but we stress that tighter policy will be needed in order to fully stabilise the country's inflationary outlook.

Major Estimate Changes

While we now estimate that real GDP increase came in at 4.5% in 2011, we expect increase to fall back to 2.2% in 2012 owing to weak domestic request and business activity. We have revised up our estimate for 2011 consumer price inflation to 100.0% from 70.0% before, and expect inflation to fall back towards 30.0% by end-2012.

Key Risks To Outlook

The major risk facing the Belarusian economy stems from government policy. While Russian financial support has helped alleviate Belarus's near-term external financing pressures, at the same time this has the potential to slow efforts by authorities towards a rebalancing of the economy. Should the government abandon its tightening policy, this could result in even better inflationary pressures emerging in 2012, which in turn could lead to further weakness in the ruble.