Kazakhstan economics: Economic growth to moderate as domestic credit growth is set to decelerate

KAZAKHSTAN - Report 20 Oct 2023 by Evgeny Gavrilenkov

The Bureau of National Statistics of Kazakhstan reported that the short-term economic indicator (the Bureau’s monthly measure of overall economic activity in the country) grew by 4.6% y-o-y in 9M23. The growth rate was higher in 7M23 and 8M23—5.3% y-o-y. In 1H23, this indicator grew even faster—by 5.6% y-o-y. However, in 5M23, it was up only 4.5% y-o-y. There were strong base effects in 2022—hence, this year’s y-o-y growth numbers are excessively volatile. Industrial output grew by 4.4% y-o-y in 9M23. Retail sales increased by over 7% y-o-y in September and 9M23. Overall, the economic situation in Kazakhstan looks decent as construction was up by 15.1% y-o-y in September and by 9.7% in 9M23. The transportation sector grew over the same periods by 7.6% and 6.8% (also y-o-y), i.e., these sectors outpaced the short-term economic indicator. However, agriculture was a drag—its output decreased by 9.9% y-o-y in 9M23 amid a poor grain harvest.

Consumer demand was strongly supported by the rapid expansion of lending to households. As of September 1, it was up by about 30% y-o-y and has added more than 19% since the start of the year, i.e., well ahead of inflation. Budgetary social spending was another pillar of economic growth in 2022-2023. Overheated domestic demand caused domestic inflation to soar. In 9M23, the National Fund’s FX reserves decreased because too much budgetary spending and a lack of tax revenue due to the too-strong tenge means not only overheated domestic demand and high inflation but also encourages the authorities to sell FX reserves to compensate for lower tax revenues. Such FX selling also contributes to further tenge appreciation. To break this vicious circle, the government will have to moderate budgetary spending, reduce the budget deficit, and let the tenge weaken. It looks as though this gradual process has begun as the tenge has traded close to USD/KZT 480 in recent days, which will help to collect more revenue and reduce FX sales.

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