Kazakhstan: Economic activity contracts for the first time since 2009
May 17, 2016
A renewed drop in oil and gas prices as well as a protracted recession in Russia continued to take a heavy toll on the economy at the beginning of the year. According to a preliminary estimate released by the Statistics Agency of the Republic of Kazakhstan (SARK), in the first quarter, GDP contracted 0.2% over the same period last year. The result represented the country’s first contraction since 2009, when the global financial crisis had hit the economy. Kazakhstan’s GDP growth, which is reported on a cumulative basis, began to decelerate sharply in Q1 2015.
Looking at the three main sectors of the economy, a deterioration in the industrial sector and in services were the main drivers behind the contraction in the first quarter. Industry decreased 0.8% annually in the three-month period up to March (January-March 2015: +1.0% year-on-year) and services contracted 0.2% in the same period (January-March 2015: +3.7% yoy). Meanwhile, the agricultural sector expanded 2.9% in the first quarter, which matched the pace registered in the same period of 2015.
The current slack in economic activity, along with prospects of a protracted recession in Russia and low commodities prices—particularly in oil and base metals—prompted the government to reduce its growth forecast for 2016. The government expects the economy to expand 0.5% in 2016, which was notably revised down over a previous 2.1% projection. Kazakh officials stated that the main factor behind the cut is the oil price. Previously, the government had based its budget on an annual average oil price of USD 40 per barrel. In its adjusted budget for this year, the government now predicts an average oil price of USD 30 per barrel. Meanwhile, in a recent visit to Astana in May, International Monetary Fund Director Christine Lagarde stated that the country is facing substantial headwinds and important challenges ahead as a result of the decline in commodities prices and a sharp slowdown of key regional economies. However, Lagarde recognized that the government is taking the right steps to address these challenges, while pointing out the importance of continued modernizing of the economic policy framework.
Author: Ricardo Aceves, Senior Economist