Economic forecast for 2015: stagnation plus monetary dictatorship

Belarus prepares for full scale recession

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GDP in Russia is expected to decline by 3%, and this factor will determine economic situation in Belarus. Stagnation in the best case – that`s what experts forecast. Currency market is likely to face monetary dictatorship, so fragile stability might be maintained.

 

From stagnation to recession

Belarusian authorities started writing economic forecast for 2015 in the spring of 2014. According to the draft of the socio-economic development Concept presented last June, Belarusian economy is going to grow by 2.6% in 2015.

Five months later, in December 2014, the government officially approved much more pessimistic forecast: according to the decree of the president n. 550, GDP growth in 2015 can equal 0.2-0.7%. Even these estimations seem to be quite optimistic, taking into account negative trends which take place in Russia – one of the most important markets for Belarusian goods.

At the end of December the head of the Ministry of Economic Development of Russia Alexey Ulyukayev said that if oil prices stabilize at a low level ($60 per barrel), Russian GDP may drop by 3% in 2015. However, in January oil prices continued to decrease – price on the world market fell to $50 per barrel.

Decline in oil prices clearly affects Russian economy. According to the latest data of the Ministry of Economic Development, in November 2014 Russian GDP fell by 0.5% compared to the same period of 2013. The negative dynamics of the main macroeconomic indicators occured in Russia for the first time in the last five years.

Considering situation in Russian economy, Belarusian economy will stagnate in the best case, the experts reckon.

“Taking into account weak competitiveness of our businesses, unfavorable situation in Russian economy, which is involved in a conflict with Ukraine, this year we can expect stagnation of Belarusian economy, transforming into recession,” – former head of the National Bank Stanislav Bogdankevich told BelaPAN.

Belarusian economists suppose that in order to maintain sustainability of financial market, the government and the National bank will adhere to the tight monetary and fiscal policies, which will have an impact on GDP`s dynamics.

“Easing of monetary policy can lead to destabilization of the currency market. If monetary policy is tight, growth of GDP won`t be possible,” – says Alexander Chubrik, Director of the IPM Research Center.

 

Monetary dictatorship is unavoidable

In late December, appointing new management of the government and National Bank, Alexander Lukashenko requested to ensure the stability of the national currency. Considering this fact and the oncoming election, experts say, the economic authorities will do everything to keep the fragile stability that has developed on the financial market.

“Stability of ruble and prices will be the primary task for the government and National Bank in 2015. Bets are placed at macroeconomic stabilization, in order to maintain the status quo until the election,” – economist Anton Boltochko supposes.

Experts point out that in order to restrain inflation, authorities will have to limit the money supply in 2015. In this case, even though devaluation equals 30%, inflation can be settled at a rather low level, as emphasizes the director of the IPM Research Center.

“The ruble dynamics in our dollarized economy affects inflation strongly, but still solvent demand will play the most important role. If there is demand, prices can be increased. If salaries are not increased and thus the money supply is restricted, inflation will be significantly lower than the established devaluation,” – said Alexander Chubrik.

Control of the money supply, which allows to reduce inflation in the country is called “money dictatorship”, as Assistant to the President for Economic Affairs Kirill Rudy said in November last year.

“We should control the money supply and cut number of government programs in order to reduce inflation rate,” – said Kirill Rudy, speaking at a recent meeting on economic issues.

Limitation of the money supply is unpopular measure in the election year. But it has to be implemented for keeping relative stability of consumer and currency markets. Its absence makes any political campaign unpredictable…