EDB Macroreview, April 2019. Republic of Kazakhstan: trends and forecasts

In 2018, Kazakh GDP grew by 4.1%, supported by increased oil production and a favorable price situation in the world energy market. Revival of credit activity fostered expansion in consumer and investment demand. Separate sectors’ contribution to overall economic growth changed during the year. In the 1st half of 2018, the GDP increase was driven by high rates of growth in oil production and the manufacturing sectors. In the 2nd half of 2018, industry reduced its contribution to GDP growth while trade turnover and construction activity growth accelerated. Inflation was 5.3% YoY in 2018, within the National Bank’s target range (5–7%). The decrease in motor fuel prices after the upgrade of major oil refineries was completed, as well as the reduction in electricity and heat tariffs for households, did much to slow down inflation. As inflation slowed in 2018, the National Bank reduced its base interest rate repeatedly, to reach 9.25% at the end of the year (compared to 10.25% a year before). The Kazakh tenge exchange rate vs. the U.S. dollar and euro decreased in 2018. Trends in the Kazakh currency were in line with those of developing economies’ currencies, i. e. a weakening as the U. S. Federal Reserve System increased its rate and the world’s economic and political risks overall grew. Kazakhstan’s consolidated budget posted a surplus in 2018, the first time since 2015. The factors behind the budget improvement included the State’s increasing incomes amid a relatively favorable external environment and economic growth, as well as decreased public spending on reviving the banking system compared to 2017. In 2019, we expect economic growth to slow down to 3.3% as oil production declines due to planned oilfield repair works. Next year, we forecast GDP growth at 3.5%. Inflation in 2019–2021 is projected to be within the National Bank’s target range (4–6%) and to gradually approach its lower limit by the end of the projection period, as the interest rate on interbank loans in tenge is kept near its neutral level, which we estimate at 7.5–8%.