Belarus’ economy returned to growth after two years of recession, expanding a modest 0.3% y/y between January and March.

Economy Minister Vladimir Zinovskiy attributed the growth to lower inflation, a more stable macroeconomic situation and cuts to the prime rate by the National Bank of Belarus (NBB).

Belarus has been having a tougher time of it than its big neighbour Russia, just because Russia has also been having a tough time. Despite its membership of the Eurasia Economic Union (EEU), Belarusian companies have found high administrative borders thrown up preventing exports to its biggest trade partner. However, some of this was self-inflicted as Belarusian traders have been using the open border between the two countries to smuggle in banned EU goods to Russia.

As incomes continue to fall, Belarus president Alexander Lukashenko dealt with the problem in an old school fashion by simply ordering minimum wages should be doubled, but will do little more than to drive up inflation.

The pain of the crisis led to highly unusual country-wide protest in April, which were quickly squashed by an increasingly aggressive police force. The falling income levels are reflected in the falling retail turnover, which has been crushed in the last year. Consumption fell 5.1% last year, but it expected to stabilise this year.

The other danger the economy faces is in the banking sector where non-performing loans (NLPs) rose to a peak of 15% at the end of 2016. The major banks need recapitalisation but there are no spare state funds to carry this out. The income banks make has been depressed by the slowdown and they are slowly increasing pressure and need an economic turnaround in lieu of more capital.

However, the outlook for the rest of this year has been improved after Lukashenko met with his counter part Russian president Vladimir Putin, who brought an end to a dispute about gas prices, unfroze $300mn in support loans and said Russia may lend Minsk another $1bn this year.

However, the end of the trade spat with Russia should provide some fuel for a recovery. Deep cuts in the export of crude for refining in Belarus’s modern refineries took the wind out of the economy’s sails and if these return to normal that will bolster growth and could add 5.6% to GDP number.