Economy
Recent Economic Developments
Growth slowed in 2022, mainly due to the negative spillovers from the war in Ukraine. It reached 3.4% yoy in H1, from 4.1% in 2021. Retail sales growth slowed to 1.2% yoy in the same period. Investment grew by 3.6% yoy in H1 as FDI rebounded in the oil and gas sector after two years of decline. On the supply side, manufacturing, and services both contributed to growth.
A sharp increase in international oil, gas and metal prices were a boon to exports, driving a trade balance improvement and flipping the current account into surplus in H1 2022 (of US$6.6 bn, compared to a deficit of US$2.8 bn in H1 2021).
Consumer price inflation reached 16.1% yoy in August, almost double the rate a year earlier, driven by rising costs of food. The authorities tightened monetary policy and imposed price caps on staple products and limited fuel and utility price increases. Since January, the tenge exchange rate against U.S. dollar depreciated 10%.
Official unemployment rate remained unchanged at 4.9% and real wages rose by 8.9% in Q2, despite high inflation. The poverty rate is expected to decline further to 15.5% in 2022 from a high of 25.6% observed in the midst of the pandemic. The poverty line for Kazakhstan was updated from the previous $5.5 in 2011 PPP to a new $6.85 level based on 2017 PPP.
Economic Outlook
There are several downside risks to the growth outlook. The war in Ukraine could result in the shutdown of the Caspian Pipeline Consortium (which carries about 80% of Kazakhstan’s oil exports) leading to large economic and fiscal revenue losses. Inflationary pressure may further erode incomes and exacerbate social tensions. Tightening global financial conditions could increase risk aversion, reduce inflows of FDI, and put pressure on the tenge exchange rate.
Economic growth is expected to decelerate to 3 % in 2022, as economic activity has been affected by lower-than-expected production of oil, high inflation and monetary policy tightening that is constraining consumer spending and private sector borrowing. Inflation is expected to moderate through 2023, but remain above the target range, which may warrant tighter monetary policy.
In 2023-24, GDP growth is expected to accelerate to 3.5 and 4.0% (below expectations prior to the war in Ukraine), aided by additional oil coming on stream from the Tengiz expansion project. The outlook is conditional on the assumption that crude oil shipment through the CPC pipeline will not be disrupted. Consumer spending is expected to gather steam as inflation subsides, whereas exports are projected to remain subdued, due to weakening demand from China and the eurozone.