October 2019. Republic of Kazakhstan: trends and forecasts

29 November 2019

In the first half of 2019, GDP growth accelerated to 4.1% YoY, driven by recovering output in metallurgy and expanding consumer and investment demand. It was constrained by an oil extraction decrease that resulted from a complete work stoppage (for planned repairs) on the Kashagan oil field.

Domestic consumer demand was stimulated by growing social expenditures from the Republic’s budget

and by an expansion of retail lending. Investment activity is mainly concentrated in the mining industries.

Inflation will stay within its target range (4.0–6.0% as of end 2019). Its temporary slowdown in 1Q2019 was caused by a reduction of utility tariffs. Inflation began to accelerate again from 2Q2019 as the tenge weakened, world food prices grew, and domestic demand expanded.

The current account deficit increased due to a weak price situation in the world oil and metals markets,  which worsened the trade balance.

The State budget’s deficit was 0.9% of GDP in the first half of 2019 versus 0.7% of GDP in the same period a year before. On the budget’s income side, the share of transfers from the National Fund increased, while expenditures were mainly increased by allocating more funds to the implementation of the Government’s social initiatives.

In April 2019, the National Bank of Kazakhstan reduced its policy rate by 25 basis points, to 9.0%, as consumer prices growth slowed down more quickly than it had expected. In the second half of 2019, inflation risks increased, and the monetary regulator responded by raising its policy rate by 9.25% in September 2019.

Economic activity is projected to accelerate in 2019, largely on account of expanding domestic demand. In the medium term, the economy is expected to continue its steady growth at near potential rates.

The inflation trends will be shaped by rising food prices and growing consumer demand. In the medium term, consumer price growth is projected to keep within the target range.

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