NUR-SULTAN, December 18, 2019 — Kazakhstan’s real gross domestic product (GDP) growth is projected at 4.0% for 2019, before easing to 3.7% in 2020, according to the World Bank’s latest Kazakhstan Economic Update.
A solid performance in domestic demand supported annual GDP growth in 2019. Higher spending on social assistance and continued infrastructure investments helped sustain consumption and investments. Business investment has largely been driven by capital spending in the mining industry and buoyancy in residential construction.
Robust domestic demand, rising food prices, and a weaker exchange rate contributed to inflation fluctuations. The annual inflation rate rose to 5.5 percent in October 2019, slightly above the rate recorded the previous year, resulting in a tightening of monetary policy by the Central bank.
Growth will moderate in 2020, according to the report, as the impact of previous fiscal stimuli diminish gradually over time, and a weaker external environment increases vulnerability to economic shocks. Although global economic growth is expected to improve slightly in 2020, weaker-than-expected growth in the European Union (EU), Chinese, and Russian economies could rattle demand and the prices of commodities relevant to Kazakhstan’s exports. Continued weak demand for corporate lending and risk-aversion by banks present another downside risk to growth.
“Although Kazakhstan’s GDP has grown at a steady pace in the last two years, going forward it will be necessary to rethink subsidy policies and lending to small and medium enterprises and industries to improve markets and sustain growth”, says Jean-Francois Marteau, World Bank Country Manager for Kazakhstan.
The special section of the Economic Update examines export diversification in Kazakhstan. The country is close to the growing markets of China, Europe, and Central Asia, and therefore trade offers new opportunities for economic growth that could also help diversify the economy.
The report highlights that, although Kazakhstan has made progress in diversifying its export destinations, the quality of products is still relatively low. Organization for Economic Co-operation and Development (OECD) data on trade in value-added indicates that Kazakhstan’s exporters used fewer imported inputs compared to a decade earlier, which suggests a declining participation in the global value chain.
“Understanding current developments and challenges in exports is key to informing policy on necessary improvements in export competitiveness,” says Sjamsu Rahardja, Senior Economist, World Bank Country Office in Kazakhstan. “Our report finds that Kazakhstan can deepen reforms in trade facilitation, attract and retain FDI, and increase participation in the global value chain.”
This edition of the country economic update is part of a semi-annual series designed to monitor socio-economic developments in Kazakhstan.