The Belarusian economy keeps on contracting: in January-July it decreased by 4 per cent. However, a number of positive trends have arisen: wages and employment are stabilising, along with improvements in current account balances. The latter might signal an imminent recovery, but that remains questionable. Increased sensitivity to global financial turbulence and the lack of policy capacities may cause a deeper and sustained recession.

A monetary union between Russia and Belarus has been on the table for ages. In the early 2000s it was not just an attractive political idea but a very likely project that was heavily worked on by the authorities. In the end, economists and analysts concluded that a monetary union with Russia wouldn’t be beneficial for Belarus and they supported their conclusion with three quite powerful arguments.

The first half of the year has shown clear evidence that the Belarusian economy needs better incentives to revive its industrial strengths.

In an attempt to fixate and extend the effects of currency devaluation, the Belarusian government and the National Bank have chosen internal devaluation as its leading policy. Internal devaluation means lower incomes and a more prudent fiscal and monetary policy will follow. But can internal devaluation serve as an alternative to structural reforms in Belarus? And, most importantly, can the authorities truly commit to tightening up their policies in presidential election year and facing threats of unemployment?

Belarus is reeling from the effects of the wobbling oil price and Western-imposed sanctions on Russia. The economy is now paying for the absence of liberal reforms through a decrease in manufacturing, the depreciation of the national currency and the need for budget cuts. The lack of good economic and political news suggests that the recovery will take a long time. But approaching the bottom provides an opportunity to fix bad economic policies and to build a new economic structure using innovative technologies.

For 2015, any positive growth would be considered a great success for the Belarusian authorities. Apart from external shocks, several structural challenges have emerged. A spike in inflation, deeper depreciation of the national currency, the distress of the banking industry, and growing unemployment have all become urgent issues that must be addressed. The government is trying to formulate a coherent response to all of these issues. So far the signals from the government suggest it is going to focus on tools of direct administrative control.