NUR-SULTAN. KAZINFORM – Kazakhstan’s economic growth between January and July reached 3.2%. The production of goods increased by 3.3%, while the volume of services increased by 2.4%. This was stated by Kazakh Prime Minister Alikhan Smailov to President Kassym-Jomart Tokayev during their August 9 meeting. More about economic development in Kazakhstan in the latest Kazinform article.
How has the economy evolved in 2021?
According to the Ministry of National Economy, the country’s economic development in 2021 was shaped by the recovery of trends after the shock caused by the pandemic.
After the implementation of anti-crisis measures and the easing of quarantine restrictions, the economy grew by 4.1%, instead of the previously expected 3.1%. The growth of the production of goods was 3.6% and that of the production of services 4%.
Manufacturing increased by 5.6%, including a 20.4% increase in machine building, a 23.9% increase in pharmaceuticals and a 9.8% increase in materials production of construction.
Overall, investment in fixed assets increased by 3.5%. Significant investment growth – by 38.1% – was observed in manufacturing, agriculture – by 33.3%, financial activity – by 32.2%, trade – by 24.7% , construction by 19.1% and real estate transactions by 17.9%.
In 2021, foreign trade turnover amounted to 100 billion dollars, of which exports – 60.3 billion dollars, imports – 39.7 billion dollars. The unemployment rate was 4.9%.
Rising inflation has been a challenge for the Kazakh economy, which also continued into 2022. According to the ministry, inflation last year was 8.4%.
What are the forecasts for 2022?
According to the macroeconomic forecasts prepared by the Ministry of National Economy for 2023-2027, taking into account the evolution of the external macroeconomic environment, GDP growth in 2022 is estimated at 2.1%. Nominal GDP in 2022 is forecast at 95.5 trillion tenge. GDP per capita is estimated at the level of $10,800.
Since the approval of the latest macroeconomic indicators in August 2021, there has been a shift in the emphasis and likelihood of external risks materializing.
“The risks mentioned above linked to the deterioration of the geopolitical situation have become real. They have also become a trigger for the realization of indirect risks. Disruption to global supply chains, volatility in commodity markets and a high level of uncertainty around the world have impacted internal economic processes,” reads the ministry forecast.
The World Bank projects that Kazakhstan’s real economic growth will slow to 1.5-2.0% in 2022, due to the disruption of Kazakhstan’s supply chains. Trade disruptions, declining business confidence and increased currency volatility are also among the factors likely to slow growth.
The Asian Development Bank (AfDB), in turn, projects growth forecasts for Kazakhstan at 3.2% for 2022 and 3.9% for 2023 in its July supplement to the AfDB outlook for 2022. This remains largely unchanged despite developments. The bank expects economic growth in the Caucasus and Central Asia to reach 3.8% in 2022 and 4.1% in 2023.
Addressing the meeting of the enlarged government on July 15, President Tokayev said that despite serious geopolitical challenges, the country is developing steadily. At the end of the first half of 2022, the real sector grew by 4.1%. Significant progress has been made in manufacturing.
But inflation is on the rise and according to the ministry, the surge in inflation is caused by the weakening of the tenge, the growth in world commodity prices, import restrictions due to the situation in Ukraine as well as the global trend of rising inflation. For example, in April 2022, the consumer price index in annual terms reached 13.2%, including for food products – 17.9%, non-food products – 11.1%.
“Inflation is now at 14.5% and above the level of 2015. In the first six months, our economy has recovered. But international institutions predict that Kazakhstan’s GDP will grow by only 2% this year. Earlier they said growth would be 3.7%. Therefore, the government should ensure the sustainable development of the country’s economy. The main thing is to increase the real incomes of the citizens,” said the president at the time.
External risks for the socio-economic development of Kazakhstan
Several external risks can have a negative impact on the social and economic development of the country. The deterioration of the geopolitical situation is one of them with sanctions leading to a slowdown in global economic activity.
Russia remains a key trading partner for Kazakhstan and the situation also has a direct negative impact on Kazakhstan’s economy. Between January and May 2022, two-way trade reached $9.2 billion, according to data from the Office of National Statistics, with exports reaching $2.7 billion.
The second risk is oil price volatility. With the resumption of economic activity, energy consumption in many countries is increasing rapidly. At the same time, uncertainty in the oil market is growing due to the unstable geopolitical situation and the spread of new variants of the coronavirus.
The outbreak of the pandemic in 2020 and the failure of OPEC+ members, including Russia, to reach agreements on oil production caused oil prices to plummet. In its August oil market report, the International Energy Agency raised its oil demand growth forecast by 380 kb/d to 2.1 mb/d. Global oil demand is now estimated at 99.7 mb/d in 2022 and 101.8 mb/d in 2023.
“Global oil supply hit a post-pandemic high of 100.5mb/d in July as maintenance ended in the North Sea, Canada and Kazakhstan. OPEC+ increased total oil production by 530 kb/d in line with higher targets and non-OPEC+ increased by 870 kb/d. Global oil supply is expected to increase by another 1 mb/d by the end of the year,” the report read.
The third risk highlighted by the ministry is the COVID-19 pandemic, which remains in place as new variants continue to spread.
“Meanwhile, the crisis caused by the coronavirus pandemic has intensified protectionist sentiments in many countries and led to heightened tensions in international economic relations,” the ministry said.
International financial institutions cut their global economic forecasts
International financial and research institutes lowered their forecasts for global economic growth with an increase in inflation forecasts.
“The risks have started to materialize.” That’s what the International Monetary Fund also said in its July 2022 World Economic Outlook. Experts predict growth will slow from 6.1% last year to 3.2% in 2022, or 0 .4 percentage points lower than in the April outlook, and moderate to 2.9% in 2023.
“Global output contracted in the second quarter of this year, due to slowdowns in China and Russia, while US consumer spending came in below expectations. Several shocks hit a global economy already weakened by the pandemic: higher-than-expected inflation around the world –– particularly in the United States and major European economies –– triggering tighter financial conditions; a worse than expected slowdown in China, reflecting COVID-19 outbreaks and lockdowns; and other negative fallout from the situation in Ukraine,” the IMF said in the report.
Inflation forecasts have also been revised upwards to 8.3% in 2022. The IMF says inflation is only expected to return to near pre-pandemic levels by the end of 2024.
Governments’ priority, experts say, should be to get inflation under control, as price stability is a “prerequisite for sustained growth in economic well-being and financial stability.” This is what President Tokayev also said at the meeting of the enlarged government on July 15, namely that the fight against inflation must be a priority for the government of the country.
July 25, the Monetary Policy Committee of the National Bank of Kazakhstan decided to set the base rate at 14.5% per annum, as you Inflation has significantly exceeded the expected path. High inflation expectations continue to increase pro-inflationary pressure.
According to National Bank estimates, inflation by the end of 2022 will exceed last year’s forecasts. Barring new shocks, annual inflation growth will continue through the first quarter of 2023 and slow thereafter.
Written by Assel Satubaldina