Boston, MA -- (SBWIRE) -- 07/30/2013 -- The Belarusian economy is set to remain dominated by state-owned enterprises (SOEs) and reliant on the export of petroleum products and potash fertiliser over the medium-to long term. Many of these SOEs remain uncompetitive by international standards and without wholesale market liberalisation the economy is unlikely to achieve notable economic expansion over our forecast period to 2022.

President Alexander Lukashenko is unlikely to see any credible threat to his position in the coming years, either domestically or from outside actors. We expect his government to continue orientating its economic and foreign policy toward that of Russia, in an effort to ensure cheap gas supplies and a favourable trade relationship.

We forecast consumer price inflation to continue its recent downward trajectory, falling to 15.0% year-on-year (y-o-y) by end-2013 and 10.0% y-o-y by end-2014 as oil prices continue to decline, pushing down fuel price inflation, and tight fiscal policy subdues demand side inflationary pressures.

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Major Forecast Changes

We have substantially reduced our forecasts for Belarusian GDP growth over the length of our forecast period. The Belarusian statistical agency has altered the base year with which they measure real GDP growth, resulting in the downward revision. We now forecast real GDP growth of 1.3% and -1.1% in 2013 and 2014 respectively, from 5.8% and 6.2% previously.

Key Risks To Outlook

A return to rampant inflation remains the primary risk to our outlook to the Belarusian economy over the short-to-medium term. If the rate of consumer price inflation ticks up and is not accompanied by an increase in the refinancing rate we could see a sharp uptick in inflation. This would likely result in increased social unrest as was seen during the last period of high inflation in late 2011/early 2012.

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