Economic growth at 0.3% in Belarus in 2016 requires oil price at USD 50 per barrel

The basic forecast of Belarus’ socio-economic development in 2016 proposed by the Economy Ministry, envisages GDP growth at 0.3%. Parameters of the forecast for 2016 look quite realistic and feasible, provided that three factors coincide – oil prices, the dynamics of the Russian rouble exchange rate and Russia’s GDP are preserved at current level.

According to the draft forecast of Belarus’ economic development in 2016, GDP will grow by 0.3%. This growth is feasible if oil prices do not fall below USD 50 per barrel, and the RUB/USD exchange rate is RUB 63 / USD 1 on average throughout the year. In addition, Russia should preserve her GDP growth rate at the level of 2015. The forecast envisages inflation in 2016 at 12% and interest rates on corporate loans at 24-27% (37% in 2015).

In January – September 2015 GDP fell by 3.7%, inflation was at 9.2%, the average price of oil around USD 50 – USD 55, and the average exchange rate of the Russian rouble – RUB 60 per USD 1. These results substantially deviate from the forecast for 2015, which assumed GDP growth at 0.2-0.7%, inflation at 12%, the average oil price at USD 83, and the average Russian rouble exchange rate at RUB 43 per USD 1. The main reason why the 2015 forecast has failed was the underestimation of the fall in oil prices. In addition, the Belarusian authorities did not have a black-up plan in case of negative developments on the Russian market, which explained their slow response to the impact of the external factors.

The forecast for 2016 is rather realistic with regard to oil prices. The World Bank in its assessments envisaged USD 51 per barrel in 2016. Provided, that Russia cuts her spending, the Russian rouble, taking into account stabilisation of oil prices at USD 50 per barrel, will match RUB 63 per USD 1. If all these factors concur, the Belarusian economy may continue growing at the level of 2015. The main risk for Belarus in 2016 carries a possible further decline in oil prices after the sanctions against Iran are lifted, which may lead to a fall in oil prices below USD 40 per barrel. In addition, budget expenditures in Russia may grow requiring a further weakening of the Russian rouble. In this case, Belarus’ GDP will continue to fall, the national currency exchange rate will require a new adjustment, and inflation will exceed the forecast parameters.

The forecast for 2015 will fail due to a significant drop in oil prices, which has not been taken into account when calculating basic macroeconomic indicators. The baseline scenario for 2016 is more realistic, but the main risk of failure is still associated with the external factors beyond Belarus’ influence.