Belarus Business Forecast Report Q4 2010 - New Market Report Published

Belarus Business Forecast Report Q4 2010 - a new market research report on

( - The Belarusian economy continues to fire on all cylinders, with real GDP expanding by 7.0% year-on-year (y-o-y) over the period of January- July. While we continue to stress that the government´s forecast of between 10% and 11% real GDP expansion for end-2010 remains highly unlikely, a strong rebound in industrial activity and net exports will help to drive strong economic growth over the medium term. We forecast real GDP growth to reach 7.5% in 2011, up from 5.0% in 2010. Furthermore, over the longer run, we expect the government´s economic liberalisation and privatisation strategy to pay dividends via increased capital investment spending, particularly by foreign investors. Belarusian President Alyaksandr Lukashenka remains the most likely candidate to win the presidential election at the beginning of 2011, with power set to remain firmly concentrated within the executive branch for the foreseeable future as a result. In the meantime, relations with Russia are set to remain strained, particularly given Russia´s strategy of normalising energy price contracts with Belarus but also as a result of a secular decline in pro-Russia trends among the Belarusian population. While Russia´s decision to normalise energy pricing contracts with Belarus at the start of the year has raised risks of a higher-than currently forecast 9.0% of GDP current account deficit in 2010, the ending of an IMF Stand-By Arrangement in March will ultimately necessitate a correction in the current account deficit over the medium term. Ultimately, this will result from a pick-up in non-energy exports and more moderate import growth, both likely to be spurred by medium-term ruble weakness. As such, we hold to our view that the shortfall as a percent of GDP will narrow towards 5.3% of GDP by 2014. We hold to our view that inflationary pressures will continue to build in Belarus through to end-2010 and into 2011. A strong economic recovery, a weakened currency, higher energy price contracts with Russia and an expansion of the money supply all support our view that inflation will rise to 9.0% by the end of the year, tracking higher to 9.5% by the close of 2011.

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