Express Analysis. June 2023

The Belarusian economy could overheat in the context of continued monetary stimuli in May. Over the five months of 2023, Belarus's GDP increased by 0.9% (YoY) and by ≈7.1% (YoY) in May only. Economic activity remained on a growth trajectory: the volume of seasonally adjusted GDP rose by ≈1.2% compared to April 2023 and it was slightly more than 1% higher than its monthly average in 2019. The high growth rate of the economy in recent months has been supported by significant strengthening of domestic demand fueled by loose monetary policy. Investment activity is still noticeably weaker than in the pre-war period, but consumer demand has exceeded the pre-war level in both services and goods. It is likely that the Belarusian economy is entering a state of overheating in the context of incomplete adaptation to the sanctions environment and artificially suppressed inflation. An indicator of overheating can be further dynamics of inflation in non-regulated services, which in recent months has noticeably exceeded 10% (MoM) (seasonally adjusted annualized monthly growth). At the end of the first half-year, GDP growth will amount to 1.5–2% (YoY) and may exceed the April forecast of 2.5% by the end of 2023, however, this will happen at the cost of a larger-than-expected imbalance in supply and demand.