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Presentation of the Belarus Economy Monitor, February, 2025. Summary
Belarusian GDP grew by 4% in 2024, with an increase of 2.4–2.5% YoY in Q4-2024, following a 3.8% YoY increase in the previous quarter. Despite the weakening growth, output remained near its historical peak. Economic overheating remained significant, though its scale decreased. This was driven by weakening exports and a slow increase in production potential due to moderate investment growth.
A labor shortage limited the potential output growth and pushed employers to raise wages. In Q4-2024, wages remained on a rapid growth trajectory, exceeding the 2021 average level by nearly 30% in real terms. In an environment of a substantial increase in household incomes, household optimism and expanded lending, consumer demand grew at a high pace.
Foreign trade in goods and services turned into a deficit due to weakened export dynamics and excessive domestic demand. The deficit reached 1.7% of GDP in 2024, exceeding Belarus’s “norm”.
Demand-driven and labor market inflationary pressures remained significant, but price growth was constrained by administrative measures. Inflation fluctuated around 4–5% MoM (annualized monthly price growth, seasonally adjusted) from September 2024 to January 2025. The National Bank did not take active monetary policy measures in Q4-2024 and relied on price controls to meet the inflation target. Fiscal policy did not demonstrate a focus on actively addressing accumulated imbalances and remained stimulative.
Economic growth in Belarus to slow from 4% in 2024 to 1.5–2% in 2025, with elevated inflationary pressure and foreign trade deficit. Economic policy will remain moderately loose in 2025, supporting excess demand. At the same time, with a labor shortage, fully utilized production capacity, insufficient investment for their rapid expansion and sustainable increase in labor productivity, monetary stimuli will yield diminishing returns in terms of output growth. Instead, they will primarily fuel consumer demand and sustain high imports. Foreign trade will remain in deficit in 2025, and inflationary pressures will continue to prevail. If authorities choose to ease price regulation, inflation will accelerate from 5.2% in 2024 to 6–8% in 2025.
Forecast uncertainty remains high, with significant risks of deviations from the baseline scenario. The economy faces substantial risks from potential new sanctions, reduction (and not a slowdown in growth to 1–2%) of Russia's GDP, and a marked weakening of global trade. On the other hand, if Russian GDP growth remains above 2.5% in 2025, it could create more favorable conditions for increased investment in productivity growth in Belarus and may temporarily sustain GDP growth above 3%. The inconsistency of targets in domestic economic policy also remains a significant source of risks for macroeconomic stability.