Kazakhstan macro: Domestic demand expands amid booming consumer credit growth
On January 19, the National Bank of Kazakhstan cut the base rate by 50 bps to 15.25%, which is still high as y-o-y inflation fell to 9.8% at the end of 2023. In December, m-o-m inflation reached 0.8%, implying about 10% annualized. Meanwhile, in recent months, the annualized 3M moving average inflation increased following a slowdown in the summer months. Interestingly, this gradual acceleration of the moving average inflation rate occurred amid the tenge’s appreciation. In recent days, the tenge has moved to about USD/KZT 445, i.e., where it was in mid-2023. Note that it hovered slightly below the 480 level in mid-October. These observations illustrate that the economy looks overheated—not least due to generous budgetary spending. Household credit grew fast in recent months and contributed to the economy’s overheating. So far, the Kazakh economy has been doing quite well, as the Bureau of National Statistics reported that the short-term indicator (a monthly proxy for GDP covering about 60% of activity in the main segments of the economy) grew by 5.1% in 2023. In the aftermath of the recent rate cut, the NBK mentioned in its press release that the country’s GDP could have expanded by about the same 5.1% in 2023.
A more moderate rate of domestic consumption growth in 2024 in Kazakhstan is likely—unless the oil price moves up so significantly that the government won’t be able to avoid the temptation to amend budgetary expenditures strongly. The republican budget expenditures are so far supposed to rise by about 6% this year, which may mean contraction in real terms if inflation stays in the high single digits. Hence, government consumption may not grow in real terms this year. Private consumption growth may remain relatively strong—even though it will also moderate as part of it is somehow linked to budgetary spending. However, consumer credit growth will likely remain quite strong this year amid lower NBK’s base rate. Investment will also grow this year, albeit not necessarily at a double-digit rate as in 2023. Net exports will remain a major drag on economic growth as expanding private consumption will imply the continuous growth of imports.
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