The Union State shrinks economically and creates its own “Schengen”

Minsk and Moscow have ratified the agreement on mutual recognition of visas. Both countries are in recession; however, the Belarusian authorities, unlike the Russian ones, believe that the economy has already adapted to the new conditions and are optimistic about its growth potential.

On January 27^th, Vladimir Putin signed the law ratifying the bilateral agreement between Belarus and Russia on the mutual recognition of visas. The preparation of this agreement lasted almost 2.5 years. The ratification of the deal means that foreign persons entitled to visa-free entry into one of the “Union State” countries can freely visit the second country.

At a meeting on the socio-political situation, Lukashenka attempted to refute the widely held belief that Belarus is run by Putin or siloviki rather than himself. He denied that this was the case and emphasised Belarusian sovereignty. He also spoke about the prospects for the return of the Belarusians, who chose to leave the country in fear of political repression.

The Belarusian government speak of “recession”, although according to Julius Shiskin’s criteria, commonly used by economists, a decrease in GDP for two consecutive quarters by at least 1.5% is exactly that. Belarusian GDP decreased by 4.7% in the first 11 months of 2022 due to reduced industrial production and a reduction in trade following Western sanctions. The Belarusian regulator is optimistic about the future: the Belarusian Ministry of Economy states that domestic macroeconomic conditions will ensure GDP growth of 3.8% in 2023.

However, the analysts of the Eurasian Development Bank (EDB) forecast that the Belarusian economy will grow by 0.3% in this timeframe. Many observers note that Belarusian prospects will largely depend on the performance of the Russian economy, and neither the Government nor the Central Bank of the Russian Federation are anticipating growth this year.

According to the Ministry of Finance of the Russian Federation, the decline in Russian GDP by the end of 2022 will be 2.7% (in April, according to Bloomberg sources, the Ministry predicted a drop of as much as 12%). The assessment of World Bank analysts is somewhat different: in 2022, the Russian economy shrank by 3.5%; in 2023, it is expected to shrink by a further 3.3% before growing in 2024 by 1.6%. The dynamics of GDP are affected by sanctions, reduced investment, and increased emigration. The baseline forecast assumes that hostilities in Ukraine will continue in the foreseeable future without significant escalation, and sanctions against Belarus and Russia will remain.