Kazakhstan’s economic growth reaches 3.2 percent in 7 months, what’s next?
NUR-SULTAN. KAZINFORM - Kazakhstan’s economic growth between January and July reached 3.2 percent. Production of goods has increased by 3.3 percent, while the volume of service has grown by 2.4 percent. This is what Kazakh Prime Minister Alikhan Smailov told President Kassym-Jomart Tokayev during their meeting on August 9. More about the economic development in Kazakhstan is in the latest article of Kazinform.
How did the economy develop in 2021?
According to the Ministry of National Economy, the country's economic development in 2021 was shaped by recovering 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 percent, instead of the previously expected 3.1 percent. Growth in the production of goods was 3.6 percent, and in the production of services – 4 percent.
The manufacturing industry grew by 5.6 percent, including a 20.4 percent increase in machine building, 23.9 percent increase in pharmaceuticals, and 9.8 percent increase in the production of construction materials.
Overall, investment in fixed assets increased by 3.5 percent. Significant growth of investment - by 38.1 percent - was observed in the manufacturing industry, agriculture - by 33.3 percent, financial activity - by 32.2 percent, trade - by 24.7 percent, construction by 19.1 percent and real estate operations by 17.9 percent.
In 2021, foreign trade turnover amounted to $100 billion, including exports - $60.3 billion, imports - $39.7 billion. The unemployment rate amounted to 4.9 percent.
Rising inflation has been a challenge for the Kazakh economy, which continued in 2022 as well. According to the ministry, last year’s inflation stood at 8.4 percent.
What are the forecasts for 2022?
According to the macroeconomic forecast prepared by the Ministry of National Economy for 2023-2027, considering changes in the external macroeconomic environment, the growth of GDP in 2022 is estimated at 2.1 percent. 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 last macroeconomic indicators in August 2021, there has been a shift in emphasis and probabilities of the realization of external risks.
«The previously noted risks related to the deterioration of the geopolitical situation have become real. They also became a trigger for the realization of indirect risks. The disruption of global supply chains, volatility in commodity markets and a high level of uncertainty in the world had an impact on internal economic processes,» reads the ministry’s forecast.
World Bank forecasts Kazakhstan’s real economic growth to slow to 1.5–2.0 percent in 2022, which is caused by the disruption in Kazakhstan’s supply chains. Trade disruptions, lower business confidence and increased currency volatility are also among the factors that may lower growth.
Asian Development Bank (ADB), in turn, expects the growth forecasts for Kazakhstan at 3.2 percent for 2022 and 3.9 percent for 2023 in its July Supplement to the ADB Outlook 2022. This is largely unchanged despite the developments. The bank predicts the economic growth of the Caucasus and Central Asia to reach 3.8 percent in 2022 and 4.1 percent in 2023.
Addressing the expanded government meeting on July 15, President Tokayev said 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 percent. Significant progress has been made in manufacturing.
But inflation is rising and according to the ministry, the surge in inflation is caused by the weakening of the tenge, growth of world commodity prices, import restrictions due to the situation in Ukraine as well as the global trend of increasing inflationary background. For example, in April 2022, the consumer price index in annual terms reached 13.2 percent, including for food products - 17.9 percent, non-food products - 11.1 percent.
«Inflation has now reached 14.5 percent and exceeded the 2015 level. In the first six months, our economy has recovered. But international institutions predict that Kazakhstan's GDP will only grow by 2 percent this year. Earlier they said that the growth will be 3.7 percent. Therefore, the government should ensure the sustainable development of the country's economy. The main thing is to increase the real incomes of citizens,« said the President back then.
External risks for the socio-economic development of Kazakhstan
There are several external risks that can cause a negative impact on the country’s social and economic development. Deterioration of the geopolitical situation is one of them with sanctions leading to a slowdown in global economic activity.
Russia remains a key trade partner for Kazakhstan and the situation has a direct negative impact on Kazakhstan’s economy as well. Between January and May 2022, bilateral trade reached $9.2 billion, according to data from the Bureau of National Statistics, with exports reaching $2.7 billion.
The second risk is the volatility of oil prices. As economic activity recovers, energy consumption in many countries rises rapidly. At the same time, oil market uncertainty is growing due to the unstable geopolitical situation and the spread of new variants of the coronavirus.
The outbreak of the pandemic back in 2020 and the failure of OPEC+ members, including Russia, to reach agreements on oil production caused oil prices to plummet. In its August report on the oil market, the International Energy Agency raises its forecasts for oil demand growth by 380 kb/d, to 2.1 mb/d. World oil demand is now forecast at 99.7 mb/d in 2022 and 101.8 mb/d in 2023.
«World oil supply hit a post-pandemic high of 100.5 mb/d in July as maintenance wound down in the North Sea, Canada and Kazakhstan. OPEC+ ramped up total oil production by 530 kb/d in line with higher targets and non-OPEC+ rose by 870 kb/d. World oil supply is set to rise by a further 1 mb/d by year-end,» reads the report.
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 has led to increased tensions in international economic relations,» said the ministry.
International financial institutions decrease their global economic forecasts
International financial and research institutes have lowered their forecasts for global economic growth with an increase in inflation forecasts.«Risks began to materialize.» That’s what the International Monetary Fund also said in their World Economic Outlook as of July 2022. Experts forecast growth to slow from 6.1 percent last year to 3.2 percent in 2022, 0.4 percentage points lower than in the April outlook, and moderate to 2.9 percent in 2023.
«Global output contracted in the second quarter of this year, owing to downturns in China and Russia, while US consumer spending undershot expectations. Several shocks have hit a world economy already weakened by the pandemic: higher-than-expected inflation worldwide––especially in the United States and major European economies––triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID- 19 outbreaks and lockdowns; and further negative spillovers from the situation in Ukraine,» said the IMF in the report.
Inflation forecasts have also been revised up to 8.3 percent in 2022. IMF says inflation is expected to return to near pre-pandemic levels only by the end of 2024.
The priority for governments, according to experts, should be to bring inflation under control, as price stability is a «precondition for durable growth in economic well-being and financial stability.» This is what President Tokayev also said at the July 15 expanded government meeting that curbing inflation must be a priority for the country’s government.
On July 25, the Monetary Policy Committee of the National Bank of Kazakhstan decided to set the base rate at 14.5 percent per annum, as t he inflation significantly exceeded the forecasted trajectory. High inflation expectations continue to increase the pro-inflationary pressure.
According to estimates of the National Bank, inflation by the end of 2022 will exceed last year's forecast. In the absence of new shocks, annual inflation growth will continue until the first quarter of 2023 and will slow down thereafter.
Written by Assel Satubaldina