Kazakhstan’s economic activity to weaken
Almaty, 6 April 2020. In 2020, Kazakhstan’s economic activity is expected to weaken amid growing external risks. This finding is presented in the Macroeconomic Review disseminated by the Directorate for Research at the Eurasian Development Bank (EDB).
In 2019, Kazakhstan’s economic growth speeded up to 4.5%, having exceeded optimistic expectations. Strong consumer and investment demand supported by incentivising fiscal policies mitigated negative external effects (such as the weak pricing environment in world commodity markets, and a slowdown in global economic growth) as well as the temporary halt in the operation of key oil producers.
The EDB forecasts Kazakhstan’s GDP growth to slow down in 2020. The decline in world oil and metal prices, as well as the negative effects of the coronavirus pandemic, will weaken external demand for Kazakhstan's exports and limit economic activity in the country. Monetary tightening will also constrain economic growth. The economy will be supported by a stimulating fiscal policy, increased financing for the current state programmes such as the Economy of Simple Things and the Business Roadmap, and anti-crisis measures. It should be said that the EDB’s forecast considers the above factors only in part, as the cut-off date for its preparation preceded the period of the most rapid spread of coronavirus in the world and the introduction of stringent measures to curb it.
The review notes that pressure on the tenge increased in early 2020 due to sliding oil prices and amid fears that coronavirus would affect the global economy. EDB analysts forecast these factors to persist in the coming months and the exchange rate of the national currency against the US dollar to remain around the current levels. In the future, as hydrocarbon prices gradually recover and the global economic situation stabilises, the tenge is projected to partially win back its positions.
Aigul Berdigulova, Analyst at the EDB’s Economic Analysis Department, suggests that the depreciation of the national currency will have an inflationary impact. As a result, inflation in the first half of the year may exceed the target corridor’s ceiling. By the end of 2020, consumer price growth is projected within the target benchmark set by the National Bank of Kazakhstan as the external inflationary background will remain weak.
The review suggests the balance of risks has shifted towards a further slowdown in economic growth. The main reason for this is that it is currently difficult to predict the consequences of the spread of coronavirus for the global economy as the scale of the pandemic and its duration remain uncertain. EDB analysts assume that the negative effects will concentrate on the demand side and will not impact significantly the production potential. Otherwise, the consequences for Kazakhstan’s economy may occur to be longer and tougher. It is also probable that oil prices will remain low for a longer period than envisioned by the Bank’s base-case scenario and that this factor will affect the expectations of economic agents as well as investment demand.
Additional Information:
The Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.
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