Belarus: Economic momentum improves in Q4, but mild contraction still recorded for 2020 as a whole
A preliminary estimate revealed the economy shrank 0.9% in 2020 as a whole, improving from the 1.2% decrease observed in the first three quarters of the year and suggesting the economy picked up pace in Q4. The improvement in the fourth quarter was likely in part because the external sector enjoyed price competitiveness brought by currency depreciation, bolstering exports and limiting imports. Belarus markedly outperformed most countries in the region last year, amid less stringent social distancing measures.
Looking at individual sectors in 2020, the key retail and wholesale trade sub-sector fell 1.4% due to the pandemic, and protests during Q3. Moreover, industrial activity took a hit despite a resilient manufacturing subsector, while construction fell only 0.1%. Other sectors prevented a sharper contraction: Agricultural output grew 5.3%, while the information and communication sub-sector increased 7.0%.
Going forward, the economy should return to growth this year on stronger external demand. However, it faces headwinds in the form of high inflation, a weaker currency, an uncertain political landscape and a fragile external debt position.
On the economy’s performance last year, Chris Portman, senior economist at Oxford Economics, said:
“While struggling to grow, the economy’s resilience to recession in 2020 showed that it is relatively well insulated against downturn, with new industries using an ongoing cost advantage to gradually plug the export gap left by withdrawal of Russian energy subsidies, and attracting enough FDI to finance the current account deficit.”
On the outlook, he commented:
“Growth in 2021-23 will also be restrained by the volatile political situation, with weekly protests continuing since last August’s re-election of President Lukashenko despite post-election efforts to raise wages and sideline opposition leaders. Increased debt exposure puts external financing at greater risk if the deficit continues to weaken the BYN, or if interest rates start to rise. Russia is expected to press for closer economic cooperation and more opportunities to buy strategic assets cheaply, in return for credit lines which the government will continue to take as an alternative to IMF discipline.”