Belarus Economic Forecast

The economy should be expanding robustly in Q3: Cumulative GDP rose 2.9% year on year in January–July (January–June: +2.0% yoy). Agricultural output rebounded, and manufacturing and construction production grew faster. Strengthening trade growth and cooling inflation in July further point to robust private spending. In geopolitics, after troops from the Russian paramilitary group Wagner reportedly moved into the country in July and began military exercises near its western border, Poland unveiled plans to send about 10,000 more troops to the frontier, and Lithuania closed two of its six border passes with Belarus. On 28 August, Estonia, Latvia, Lithuania and Poland said they would fully shut their borders with Belarus if a critical incident threatened national security or in the case of mass emigration from Belarus. These events bode ill for regional security and trade.

Inflation fell to 2.5% in July (June: 2.7%) despite higher food price growth. Our panel sees average price pressures cooling in 2023 compared to last year on a high base effect, strict price controls and subdued economic activity. Sharper-than-expected interest rate cuts and the emergence of parallel markets arising from anti-inflationary measures pose upside risks.