In the shadow of the potato crisis – problems of the Belarusian economy

The key macroeconomic indicators of Belarus for the first half of the year show a clear slowdown in its economy. GDP of this country increased by only 2.1% y/y at the time. specified a low level – at the end of the first half of the year there was a 5% y/y increase – this is the effect of losing growth dynamics in the economy in the last months. For comparison, GDP rose by 2.8% from January to April and by 2.5% by May. The slowdown besides concerns industrial production – in the first half of the year, it was only 0.3% higher than in the same period last year, and at the end of April and May by 1.4 and 1% respectively. In the same months of the erstwhile year, there was besides a higher increase, ranging between 6 and 8%. Stocks of finished unsold production are growing, especially in large state-owned industrial plants. Poorer results were besides found in agriculture – among others in food production, in which (as in industry) growth dynamics slowed down strongly.

In abroad trade, the deficit has been worsening for respective months. While the value of turnover is akin to that of the first half of 2024 (approximately $41 billion), the proportions in the balance of trade in goods have changed to a disadvantage – in the first half of this year the deficit has almost doubled (from 1.7 billion to 3.1 billion). Trade with countries outside the Commonwealth of Independent States (NP); due to western sanctions, Belarusian statistic have not published detailed data for respective years: from January to June, the export value decreased by $700 million and imports increased by nearly $800 million, which translated into a negative balance sheet of $4.2 billion. This phenomenon is besides accompanied by an increase in inflation, which in the same period amounted to 7.3% and in comparison to the first half of the year increased by 1.5 pp.

The economical crisis is threatened if negative trends from fresh months in Belarus persist. It can mainly be triggered by declining request in Russia, which accounts for around 70% of exports, and deficiency of prospects for the abolition of the EU trade embargo.

Comment

• The clear signs of abroad trade disruption are presently a major threat to the stableness of Belarus' economy. They are liable for the declines in the sale of agricultural equipment, trucks and another goods to Russia. The continuation of lower request in this marketplace may lead to further deterioration in the condition of the Belarusian manufacture in the coming months, which provides about 20% of GDP. On the 1 hand, mediocre trade performance with countries outside the CIS shows the effectiveness of Western sanctions (as a consequence of which the EU's share in the exchange with Minsk has fallen from more than 30 to 5% over the last 5 years) and on the another hand, reflects the very limited possible of Minsk's declared "expansion" of Belarusian exporters to the markets of the countries of Africa, Asia and South America.
• Inflation is simply a serious hazard driven by excessive wage increases. Forced by the political crisis, large emigration after 2020 (up to 600,000 people left the country) and than the demographics have led to a shortage of workers in the marketplace there – now the number of vacancies exceeds 200,000 (see IP. A depopulated country. Demographic situation in Belarus). Employers' increases in staff stability, according to the latest figures in May this year's average wage growth was almost 20%, are a pro-inflationary origin that besides fuels request for imported goods, which further exacerbates the trade balance deficit. Independent Belarusian analysts foretell that inflation can scope a two-digit value at the end of the year, which is above the level projected by the Belarusian authorities by over 5pp.
• There is barely any indication of the anticipation of reversing or suppressing downward tendencies. To The inactive recorded minimum GDP growth is de facto mainly due to home investments, including construction, but under limited resources both in the state budget and in local companies, they cannot be a pillar of economical development. It is besides hard to anticipate effective anti-crisis action by the authorities – the inability to do so has clearly demonstrated a consequence to the sharp potato deficit which has been sold on a large scale to Russia since the anticipation of obtaining a higher price. In his first instinct, Alaksandr Lukashenka publically threatened officials, then authorised imports of this product from an “enemy” and criticized for the EU sanctions policy, and yet imposed advanced financial penalties on trade chains and wholesalers not supplying basic vegetables on time.