GDP in 1Q2018 continued to rise, reaching 4.1% yoy. According to our calculations, GDP growth was 2.4% qoq for 1Q2018, while an average quarterly rate in 2017 was at around 1.2% qoq. This year, as before, the industrial sector remains the main catalyst for growth, but it is starting to lose some momentum (+5.4% yoy in 1Q2018 vs. 6.3% yoy in 1Q2017). In these conditions, non-tradable sectors of the economy (trade, transport and other services) are the main contributors for the further GDP expansion.
GDP in 1Q2018 continued to rise, reaching 4.1% yoy. With seasonal correction, the dynamics of gross production is also on the rise from 4Q2017 after a slight slowdown in the middle of last year. According to our calculations, GDP growth was 2.4% qoq for 1Q2018, while an average quarterly GDP rate in 2017 was at around 1.2% qoq.
According to our estimates, the industrial sector provides ~2pp of annual GDP growth. In the 1st quarter of 2018, the contribution of trade and transport widened to 1.3pp (vs. 0.8pp in 1Q2017). This year as before the industrial sector remains the main catalyst for growth, but it is starting to lose some momentum (+5.4% yoy in 1Q2018 vs. 6.3% yoy in 1Q2017). In these conditions, non-tradable sectors of the economy (trade, transport and other services) are the main contributors for the further GDP expansion. In view of the world oil prices upturn, revenues from the commodity sector are apparently starting to be redistributed into labor wages, stimulating demand and expanding the services sector and trade.
As a result, a significant increase in retail and wholesale turnover is consistent with positive real incomes (+3.7% yoy in January-March) and real wages (+2% yoy in January-March). In turn, the recovery in domestic demand will partly be met through increased imports, which will have a negative effect on GDP growth.
Short-term economic indicator for the first time since the beginning of the year slowed in April, for the period from January to April, the increase was 5% yoy (5.3% yoy in January-March, 5.4% yoy in January-April 2017).
The growth rates of industrial production for the first 4 months of the year are positive: +5.1% yoy, but with a slowdown by 0.2pp compared with the growth for the first three months of this year. IP is also lower than last year (for comparison, +7.1% yoy for January-April 2017).
Positive dynamics is maintained in oil production (+5.9% yoy vs. 6.1% yoy in January-March 2018), ferrous metallurgy (+6.1% yoy against 7.7% yoy in January-March), production of non-ferrous metals (+2.4% yoy against 3.9% yoy in January-March). Oil production by April reached 30 million tons, while the Government expects a production level of 87 million tons by the end of the year (of which 11 million tons are planned to be produced at Kashagan).
Considering the dynamics of the industrial production index on a monthly basis, in April, although it shows a decrease of 2.2% mom (mainly as a result of a decrease in oil and metallurgy, mom), adjusted for seasonality, growth is at 1% mom. Thus, we believe that this slowdown in industry is not yet significant. Seasonally adjusted monthly growth in this sector remains positive at 1% mom. The contribution of industrial production to the indicator of STEI for January-April was about 2.7pp from 5% (~54%), according to our calculations.
The high growth in trade supported the STEI: the contribution of the industry, according to our calculations, was about 1.5pp out of 5% (~30% of the increase in STEI). The indices of the physical volume of trade have significantly increased since the beginning of the year, +6.2% yoy in January-April 2018 (+2.4% yoy in the same period last year). The wholesale trade is growing faster, +6.8% yoy, in the retail segment - the index is at the level of 5.4% yoy.
A significant increase in wholesale trade occurs in the food products segment (+53% yoy, share - 27%), there is a decrease in the non-food sector (-4.7% yoy, share - 73%). A breakdown by region shows an impressive increase in wholesale trade in Atyrau, which is consistent with the acceleration of oil sales in the domestic market (+38.7% yoy in January-February 2018 against 26.6% in the same period last year). Wholesale trade in food products in Almaty has more than doubled. In general, in almost all regions of the country there is an increase in wholesale trade, excluding Astana.
The increase in retail turnover was due to non-food products (+9.9% yoy in January-April 2018), financed apparently by consumer loans (loans increased by 19% yoy in March), food turnover decreased (-2.7% yoy).
Transport services also show acceleration this year, +4.6% yoy in January-April (against +3.5% yoy in January-April 2017). The contribution of this sector to STEI, according to our calculations, was at around 0.6pt (~12%). Freight turnover increased by 9.6% yoy in 4 months. However, after a slowdown in industry, in rail transport, which takes the largest share of the entire country's freight turnover (49%), there is a decrease of 5.4% mom.
In agriculture, since the beginning of the year, an acceleration is observed: +3.8% yoy in January-April 2018 against 2.9% yoy in January-April 2017 (contribution to the STEI: 0.13pp). The index of physical volume in crop production seasonally at an unchanged level compared to last year, a significant increase in livestock production (+4% yoy in January-April 2018) against a background of growth in investments in agriculture (+21% yoy in January-April this year).
The volume of construction work in April fell by 4.3% yoy, which is why in January-April 2018 the industry index amounted to 2.1% yoy against 5.9% yoy in January-March 2018. Construction for the first 4 months compared to last year shows a slight increase in almost all regions of the country, except Atyrau, Pavlodar and Astana. Completion of modernization projects at the refinery (in Atyrau and Pavlodar) affects the slowdown of the entire industry. In the structure: construction and installation work is being reduced, and the entire increase was due to works on capital repair.
In the communications sector, the growth amounted to 6.9% (January-April 2018) versus 5.1% (January-March 2018), compared to the previous year, the volume of communication services also increased (+ 2% in January-April 2017).
Investments in fixed assets in January-April are higher by 28.9% yoy. The investment growth rate slows down: the main jump occurred in January this year (+ 64% yoy), an increase in April subsided to 7.2% yoy. The largest share of capital investments falls on the production of crude oil and natural gas (41.6% of total investments), real estate operations (12.8%), transportation and warehouse (11.6%). The most rapid growth was in capex in construction (+61% yoy), transport (+51% yoy), real estate operations (+27% yoy).
The export-oriented model of the country's economy supports a relatively high GDP growth rate of 4.1% yoy in 1Q2018 in view of an increase in world prices and demand for oil. At the same time, in our assessment, the structure of GDP has changed somewhat towards non-tradable sectors of the economy, the income of the commodity sector is slowly being distributed to the domestic sectors of the economy and services (trade, financial services, communications, transport). With the growth of real wages and incomes of the population, on the one hand, we expect the recovery of domestic demand, but on the other hand, this will partly stimulate imports, having a negative impact on GDP. The growth of trade in the absence of sufficient rates of production of goods in the country may soon come to end. By the end of the year, the GDP growth rate, according to our estimates, will be at 3.9%.
The short-term economic indicator shows a slowdown in April, caused by a seasonal decline, on a monthly basis, in April in the industrial production and a fall in the volume of construction work. Based on capital investments, we expect accelerated rates of output in agriculture and the extractive sector. However, the persistence of commodity concentration and the dominance of the public sector in stimulating GDP growth make the economy vulnerable to negative external shocks.
By Elmira Arnabekova for Halyk Finance (Kazakhstan).
