Real Sector: slowdown on the brink of a crisis

Vadim Sekhovich

Summary

In 2025, the rapid slowdown of the Russian economy directly affected Belarus. The country’s GDP growth was more than three times below projections, pushing Belarus’s economy closer to stagnation.

Industrial output declined. In foreign trade, Belarus recorded its worst deficit of the 2020s.

In the public sector, the loss of market positions in Russia and domestically is becoming increasingly apparent. Russian companies capitalize on price liberalization. In 2025, they offset declining demand at home by expanding into foreign markets. Their primary target for expansion was Belarus, given its geographical proximity and vulnerability in terms of customs regulations.

The private sector remains capable of competing against Russian companies in the domestic market and is sufficiently competitive in Russia and third-country markets. However, cuts in government support and the increased resource extraction undertaken by Belarusian authorities during crises are diminishing its resilience to external challenges.

Trends

Industrial decline

In 2025, Russia experienced a sharp slowdown in economic growth due to a decline in consumer activity. The dependency on the Russian market, which had become critical, immediately impacted Belarus’s economic situation. The country’s GDP growth also decelerated, bringing the Belarusian economy close to stagnation.

The vital contributor to Belarusian GDP — industry — reported not just stagnation, but a decline, as in 2022. The manufacturing industry, almost entirely reliant on the Russian market, was hit especially hard by falling demand.

The tightening of existing international sanctions also had a substantial effect. The modest GDP growth observed in 2025 was primarily maintained by relatively robust performance in construction, IT and communication, transportation, and overall proactive monetary and credit measures undertaken by the authorities to boost domestic consumer demand.

In 2025, Belarus’s GDP expanded by 1.3 % in comparable prices, reaching BYN 286.7 billion. However, this growth was more than three times lower than the initial forecast by the Belarusian government. The key socio-economic development forecast for Belarus in 2025 initially projected a growth rate of 4.1 %.

The slowdown in Belarusian economic growth was primarily driven by issues within the domestic industry. After two years of growth — 7.7 % in 2023 and 5.4 % in 2024 — the volume of industrial production, a key component of Belarusian GDP, reached only 98.2 % (BYN 208.0 billion) of the 2024 level.1

The industrial production index (IPI) declined in four of Belarus’s seven regions, including the main industrial hub — Minsk (−4.0 %). Growth was recorded only in the Grodno (+1.1 %), Brest (+0.9 %), and Minsk (+0.4 %) Regions.

Manufacturing, which makes up approximately 90 % of the country’s IPI, produced goods worth BYN 184.9549 billion, experiencing a 2.5 % decline compared to 2024. Within this sector, there are exceptions demonstrating solid growth. Increased domestic demand paved the way to growth in pharmaceuticals, the food industry, and woodworking, while electronics benefited from supplies to the Russian military-industrial complex. However, the majority of the core industries — such as mechanical engineering, chemistry, metallurgy, and others — have been affected by the shrinking main markets in Russia since the second half of 2025.

Ultimately, enterprises subordinate to the Ministry of Industry alone missed out on an equivalent of USD 1 billion in revenue in the Russian market. A substantial part of the products manufactured and accounted for in GDP was stockpiled in warehouses. As of early 2026, the Ministry of Industry’s inventory — comprising products made by the most Russia-dependent enterprises — was worth USD 3.2 billion. In January 2026, inventories grew by an additional USD 800 million.2 Overall, in 2025, the industrial sector’s inventories ended up equivalent to 80.3 % of the average monthly production volume, up from 63.5 % in 2024.

As sales declined and inventories grew, the financial stability of many industry leaders worsened. The situation was compounded by decreasing exports to the limited markets outside Russia and the CIS, a shortage of Russian port capacities, and stricter sanctions. For example, ten companies involved in exporting Belarusian fertilizers, metal and wood products, and cement to Europe were added to Poland’s national sanctions list. Throughout the year, the number of new companies included on this list surpassed all previous Belarusian companies listed since mid-2022.3

Minor increases in other sectors — mining (+2.7 % year-on-year, reaching BYN 2.8233 billion) and power engineering (+1.7 %, BYN 16.4022 billion) — were insufficient to make up for the overall negative performance of the Belarusian industrial sector. The water supply, sewage, waste collection, treatment, and disposal sector performed roughly as effectively as in 2024 (BYN 3.8665 billion).

The agricultural sector expanded, but not as much as the government’s expectations — by only 0.2 %. To compare: in 2024, growth was reported at 3.4 %. For most types of agricultural activities, the apparent gross gains mask insoluble efficiency issues. In 2025, state support for agriculture to cover losses (excluding preferential loans and credits) amounted to BYN 2.1 billion.

In 2025, Belarus’s GDP sustained positive momentum largely due to services and commerce. Leading sectors in terms of contribution and growth rates in gross added value included construction (up by 8.0 %), information and communication (3.5 %), and transportation (2.9 %). However, growth in these sectors also slowed. Increase in commissioning of new residential buildings slowed from 4.7 % in 2024 to 4.2 % in 2025, impacting secondary housing prices.

Retail turnover expanded by 6.6 % in 2025, compared to 12.2 % in the previous year, while wholesale trade contracted by 4.9 % from 2024 (when a 3.1 % year-on-year increase was reported).

Foreign trade gap

In 2025, the country’s foreign trade turnover of commodities and services reached USD 105.23 billion, marking a 4.5 % increase from the previous year. Losses in exports of goods to Russia and the faster growth of imports widened the overall deficit of trade in commodities and services by 18.3 % to USD 1.812 billion.4

In terms of goods, the deficit approached the 2010 level (USD 9.6 billion), which was associated with one of the most severe financial crises in contemporary Belarusian history. In 2025, the deficit expanded by 26.6 %, reaching USD 5.96 billion. Exports of commodities, which received some support from petroleum product supplies to Russia and growing potash fertilizer exports, went up by 1.2 % (to nearly USD 40.0 billion). Meanwhile, imports grew significantly more — by 3.9 % — reaching USD 45.95 billion.

Commodity imports grew partly as a consequence of the government’s policies aimed at stimulating GDP growth by encouraging companies and citizens to spend more domestically. Some of these resources ultimately went to Russian producers, who continue their expansion into the union consumer market. Currently, Belarus accounts for 45 % of Russia’s total agricultural exports to the EAEU. Last year, these exports were estimated at around USD 3 billion. As a result, Belarus’s import substitution policy is failing. Over the past five years, the share of domestically produced goods in the local market has shrunk from 60 % to 54 %.

The commodity trade deficit was partly offset by services. Exports of services increased by 16.0 % to USD 11.71 billion, markedly faster than imports, which grew by only 9.3 % to USD 7.56 billion. Therefore, trade in services came to a surplus of USD 4.15 billion, representing a 30.6 % increase from 2024.

In the previous two years, the state sector mainly benefited from the exit of Western competitors and an increase in military orders from Russia. However, last year, it experienced the largest losses due to problems in the Russian economy. Years of efforts by the government to find alternatives to the Russian market and replace Western buyers have largely remained unsuccessful. Furthermore, exports to Asia, Africa, and South America declined even more sharply than those to Russia and the rest of the CIS.

New structure of private business

A significant achievement in 2025 was the near completion of a new framework for Belarusian private enterprises. Most of these entrepreneurs are individuals who, despite the events of 2020 and the ongoing conflict in Ukraine — where Belarus aligns with Russia — have maintained their personal involvement and continue to develop their businesses.

The smaller segment comprises those for whom the said triggers prompted relocation, a process mostly completed by 2025. For instance, in Poland — now the primary destination for Belarusian businesses (accounting for up to 75 % of all relocations) — the number of registered companies owned by Belarusians did not increase for the first time in a decade, but declined. In Lithuania, the Czech Republic, Germany, Latvia, and other countries, this decline occurred earlier. Estimates indicate that the combined revenue of Belarusian private businesses based in Western countries is around USD 10 billion, representing roughly one-tenth of the country’s GDP.

Two groups of Belarusian private enterprises face both local and shared challenges. The local issues for the first group include the collapse of the Russian market, fiercer competition there and within the domestic market from Russian suppliers, as well as the traditional austerity measures during crises and the government’s efforts to shift some problems from the public sector onto private businesses.

Additional local challenges involve tightening of sanctions, rapid expansion of security agencies into the economy and business, aggravating staff shortages, and increasing technological gap. The Belarus Hi-Tech Park — once a major driver of Belarus’s economy that was supposed to contribute 15 % to GDP — is transforming into a source of inexpensive labor and innovative ideas for Russian corporations.

Belarusian companies operating internationally encounter numerous local challenges as well. These include a challenging adaptation process, increased barriers to entering competitive markets, and complex interactions with regulators. Moreover, sanctions have been strengthened, as many relocated businesses depended on models that assumed ongoing operations within Belarus and Russia.

Shared challenges for both groups include the ongoing global technological transformation, particularly the integration of AI and other cutting-edge innovations into the economy. Naturally, the persistent turbulence in the world economy has remained for years, which, amid the new conflict in the Persian Gulf, could develop into the most severe economic crisis of the 21st century.

Conclusion

Since the war in the Persian Gulf began, external challenges, whose number increased last year, have gained real potential to cause a global economic crisis and, more dangerously, serve as a precursor to the Third World War. Against this backdrop, the Belarusian authorities’ forecast of a 2.8 % GDP growth in 2026 seems overly optimistic, if not utopian.

The supposed link between this growth and anticipated improvement in the economic situation in the key market of Russia has no basis in reality. The Russian authorities will be unwilling to share the short-term dividends gained at the start of 2026 from the easing of energy sanctions, especially amid shrinking budget revenues. Meanwhile, Belarus’s economy has neither had nor currently has an alternative to the Russian market. The involvement of the Persian Gulf countries in the conflict deprives Belarus of one of its most promising alternative markets and a vital source of investment.

The slowdown in construction volumes and retail turnover last year showed that the capacity for expanding domestic demand is diminishing, and attempts to boost it through stimulation carry the risks of triggering inflation spikes.

Initiatives to attract pensioners and young people have been insufficient to tackle the issue of diminishing available labor resources. The authorities failed to attract migrants, either. Likely global and regional crises could, on the contrary, accelerate the outflow of talent from the national economy. This may also trigger a new wave of Belarusian business emigration — not only from Belarus but also from Russia. This process is already underway, now with a different direction — toward “friendly” countries in Central Asia, the Caucasus, and Turkey.

The repudiation of the social contract between the state and private enterprise in the 2020s has made businesses more susceptible to exogenous interference by officials, primarily from the security sector. Such interference hampers the development of existing businesses and the emergence of new ones focused on long-term investments in the economy.