Kazakh GDP grew by 4.1% y/y in the first 10 months of 2018. The growth rate stood largely unchanged in comparison to the figures reported in the first nine months, first half and first quarter of 2018 - growth uniformly stood at 4%-4.1% throughout those periods.
Kazakh growth rebounded to 4% in 2017, up from 1% in 2016, and the government attributed the steady growth to a weakening of inflationary pressures and high investment activity.
Kazakhstan has slightly cut its 2019 economic growth outlook to 3.8%, down from the previously anticipated 3.9%, Economy Minister Timur Suleimenov said on November 27. The adjustment is due to lower expectations for the average Brent crude price - the Kazakh government originally assumed an average world oil price of $60 per barrel for 2019, but the forecast followed Russia and has been cut to $55. Per capita GDP is set to amount to $9,400 in 2019, Suleimenov added.
The European Bank for Reconstruction and Development (EBRD) said on November 1 that economic growth in Central Asia is expected to moderate in 2018-2019. It gave its latest assessment in its Regional Economic Prospects report.
The report says that for Kazakhstan there is “foreseen a substantial increase in the minimum wage” underpinning private consumption to a certain extent, while fixed investment in the oil and gas sector is also likely to support economic growth. As such, Kazakh growth is expected to remain at 4% in 2018, unchanged from the previous year, but ease to 3.5% in 2019.
The International Monetary Fund (IMF) revised up its 2018 growth projection for Kazakhstan by 0.5pp to 3.7% in the October 2018 edition of its World Economic Outlook, which expects GDP growth in Kazakhstan to slow to 3.1% in 2019.
Economies in Central Asia and the South Caucasus will average annual growth of 4.2% in the coming years, the International Monetary Fund (IMF) said in a preliminary report noting the highlights of an upcoming Middle East and Central Asia November 2018 outlook.
The rate is less than half the rate of growth seen in the early 2000s. As such, the IMF believes the region needs to strengthen reform efforts to reduce governments’ roles within economies further rather than seeing growth from growing oil prices as an excuse to relax. The Fund also believes growing global trade tensions pose a risk to the region’s growth. Moreover, it noted that it’ll likely take around two decades on average for the region to reach per capita income levels of emerging Europe.
While growth is steady, the Kazakh currency is less so as it remains exposed to both volatility in oil prices and the swings of the Russian ruble.
Kazakhstan’s national currency hit KZT380.93 against the dollar on September 12, falling to a 31-month low. The all-time weakest tenge to the dollar rate of KZT382 occurred in early 2016, thus the currency is on the brink of suffering its weakest ever value versus the USD. The tenge has largely fluctuated around KZT340 throughout most of 2018, but it acquired fresh downward momentum in July which accelerated in August. Some Kazakh analysts argued earlier in 2018 that the tenge was “overvalued” and that its “real value” stood at around KZT420 to the dollar.
Another major effect on the tenge probably comes from the demoralised Kazakh population’s general distrust of the country’s regulator—most of this stems from devaluations of the currency prior to the central bank adopting the free-floating exchange rate in 2016. Kazakhstan has experienced no less than six such devaluations or “devalvatsiyas”—a word that has come to signify the rapid and sudden weakening of the tenge rather than a general term for loss of value over time—since gaining independence in 1991. The adoption of the free-float currency system essentially tied the tenge directly to changes in world oil prices and the rate of the Russian ruble.
Kazakh companies are buying dollars on fears that US sanctions against Russia are set to intensify. Kazakhstan and Russia have close trade ties, where the latter approximately accounts for 35% of the ex-Soviet Central Asian nation’s trade. Russia’s ruble is under threat from new US sanctions that may appear in the New Year and its outlook is uncertain.
Annual consumer price inflation in Kazakhstan stood at 5.3% in November, in tune with the central bank’s expectations. Inflation in Kazakhstan was projected by the regulator to stay between 5-7% in 2018. The forecast for 2019 is for inflation to fall to between 5.0-5.5%. The central bank said it planned to aim to achieve a 4% inflation rate by 2020.
The central bank in July cut its policy rate for the fourth time in 2018, reducing it to 9% from 9.25%, but tightened its monetary policy, boosting it 0.25 percentage points up in October. It previously stated that it was aiming to maintain the policy rate at four percentage points above the level of inflation.
The investment activity in the period was supported by Chinese investments as part of the huge One Belt One Road initiative, which seeks to deploy investments in Kazakhstan to enable the creation of transit hubs for Chinese goods heading to Europe and vice versa. Growth was also likely driven by rising oil prices and expansion in oil production - mostly at the giant Kashagan field.
Reported by Business New Europe.
