Belarus’ GDP results for March demonstrate ‘economic recovery’

Belarus’ GDP performance in March, despite other failed indicators, allows the government to talk about a breaking point in Belarus’ economy. Potash and oil refining industries have improved the economic results in Q1 2014. Meanwhile, the GDP statistics do not reflect the real picture in the economy, which could lead to the government making ill-considered decisions to stimulate domestic demand.

On April 18^th, the National Statistical Committee published data on socio-economic development in Q1 2014.

Unlike in previous years, the 2014 GDP forecast was adopted taking into account the dynamics of the expected quarterly implementation. According to the Council of Ministers Decree No 17 of January 13^th, 2014, GDP in Q1 should be 100.0-100.7 % of Q1 2013. According to the National Statistics Committee, in Q1 2014 the index was 100.5 % of GDP in Q1 2013, which falls within the forecast. Failure to implement the projected export indicators will be justified by the major problems with Belarus’ foreign partners – Russia and Ukraine. Belarus failed to raise considerable amounts of foreign direct investments. The government will present this relative success, achieved in March, as a trend, which implies economic improvements by the year-end.

Q1 2014 GDP growth was due to the economy’s performance in March 2014. Dumping on the potash market has allowed Belaruskali to increase export volumes. This is important when calculating the industrial production index, which ignores the fall in export prices. Growth in exports of potash and oil leads to an increase in wholesale turnover, which is included in the GDP calculation. In March, Belarus increased production of gasoline and diesel fuel, which, given the dynamics in potash fertilizer production, allowed growth to be demonstrated in the industrial production index (compared with March 2013) for the first time in 2014.

Belarus’ economic growth is the result of constant methodological adjustments. The real situation is reflected in the financial health of companies. In January-February 2014, net profits in Belarus’ economy decreased by 37.4%. Many industries are loss-making, and the Mogilev region has been making losses for two months in a row. Another piece of indirect confirmation that the financial picture is worsening are growing arrears: most businesses do not have funds to pay for supplied raw materials.

The government might ignore the financial situation in the country and continue to stimulate economic growth with loans to state enterprises. Given the shrinking international reserves and net purchases of foreign currency by individuals on the domestic market, such governmental actions will increase pressure on the Belarusian ruble. The pressure can only be sustained either by foreign currency inflow, for example, from Russia or by new ‘solvent’ schemes.

Q2 2014 will show whether the government is capable of managing Belarus’ economy. Meanwhile, Belarus will continue to stimulate the economy by printing money, hoping that restrictions on mutual trade between EEC partners will be removed in 2015.