Boston, MA -- (ReleaseWire) -- 06/11/2013 -- Core Views
Consumer price inflation is set to continue its downward trajectory through 2013, reaching 15.0% by year-end as imported wheat prices moderate and the cost of Russian gas is cut. President Alexander Lukashenko has reiterated his government's commitment to countering price rises, advocating 'more aggressive steps' to reduce inflationary pressure. However, with our forecast for the Belarusian ruble to depreciate and the refinancing rate to be cut by a cumulative 15 percentage points (pp) this year, risks remain to the upside.
We project private consumption to be a key driver for Belarusian real GDP growth in 2013 as prices continue to fall in line with declining inflation. Lower Russian gas prices in 2013 should translate into higher discretionary consumer spending in the coming months. Increased investment from China in Belarusian industries may provide the sector with much needed impetus to modernise its outdated technology and archaic bureaucracy, however, we do not expect a modernising revolution to occur at any substantial pace.
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The regime of President Lukashenko will retain its status as the only political entity in the country for the foreseeable future. Opposition groups are too few in number and lack the widespread activist support required to challenge the current administration.
With this in mind we continue to project a shift in the focus of Belarusian economic and political policy away from the EU, which has placed various sanctions on exporters as well as those within the Belarusian regime, and towards the cheap energy source of Russia.
Major Forecast Changes
As a result of our projection for a cumulative 15 percentage points of refinancing rate cuts during the course of the year, as well as poor overall trade figures we have revised our forecast for the Belarusian ruble to average BYR8,735/US$ and BYR8,725/US$ in 2013 and 2014 respectively, from BYR8,385/US$ and BYR8,100/US$ in our previous forecast
Key Risks To Outlook
The policies of the government and central bank will continue to present the most prominent risks to the Belarusian economy over the course of 2013, with the possibility of overly loose monetary policy, in the pursuit of faster economic growth, risking an inflationary relapse and a sell-off of the Belarusian ruble.
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