Belarus's GDP growth managed to strengthen in November. But despite this, many signals about an upcoming downturn have appeared. The Russian economic contagion began to spread to Belarus through trade and informational channels. The government reacted by introducing a de-facto 30% devaluation that was accomplished in a rather ‘creative’ manner. But this decision seems to be more like a short-term relaxation than anything else, while further adjustments have become inevitable.

The main economic events for October in Belarus revolve around Russia: the ratification of the Eurasian Economic Union, the continued fighting over the re-export of banned European foodstuffs to Russia, and, finally, an argument over Russia’s oil tax manoeuvre. Russia’s actions, both political and economic, further complicate the situation with the Belarusian economy, which is exhibiting subpar growth for the third year in a row. Ironically, its troubled economy is forcing the Belarusian government to seek even more assistance from Russia.

Price increases for regulated goods and services, as well as the abolition of price regulations on meat had a stimulating effect on inflation in Belarus. In the first half of 2014 a gradual reduction of Belarus' foreign currency reserves occurred as a result of significant foreign debt service payments. But over the summer this year external and internal borrowing and foreign currency purchasing by the National Bank had a positive influence on the volume of foreign currency reserves. Although the growth of real wages in the first half of 2014 slowed down, it remains in the green. Increases in real income helped to reduce the number of households with incomes below the national poverty line.

The National Bank continues to gradually reduce its refinancing rate. The latest reduction, which occurred in August 2014, may help make receiving financing for legal entities easier. And yet, despite their best intentions, these steps contribute to the accumulation of macroeconomic imbalances in the country. An analysis of the pros and cons have forced the Belarusian authorities to come up with an agreement that will normalise trade relations with Ukraine. The possibility of a real deterioration in their mutual trade relations has encouraged the officials in Minsk to push for the removal of all announced limitations imposed on Ukraine.

For the first time over the last six months, in June Belarus saw an increase in its foreign exchange reserves. This growth was due to the issuance of a bridge loan by Russian VTB Bank. At the same time, the overall amount of foreign exchange reserves remains relatively low, a problem which has been influenced by an increase in foreign debt repayments this year.

The economy of Belarus is showing signs of rising levels of output with most industries increasing their overall output figures throughout May. At the same time foreign and domestic investment demand are exhibiting signs of recovery. However, this recovery does not itself necessarily signal a return to high output growth. The growth rate is likely to remain weak in the coming months and a new challenge – climbing inflation – might hurt the economy.