Kazakhstan: Economic growth weighed down by domestic demand
April 29, 2016
GDP data released by the Statistics Agency of the Republic of Kazakhstan (SARK) that included a breakdown by expenditure components showed that the drastic deceleration in 2015 reflected overall weakness in domestic demand and a deterioration in the external sector. GDP expanded 1.2% in 2015, which came in well below the 4.1% increase observed in 2014 and marked the weakest growth pace since 2009.
Looking at the details on an expenditure basis, growth in private consumption fell from 1.5% in 2014 to 1.0% in 2015, mainly due to the fact that households had to face a difficult economic environment with substantially-high inflation. In addition, a deep recession in Russia caused remittances from Kazakh workers to drop, impacting an important source of income for households. Moreover, the government saw its fiscal revenues decrease due to a collapse in oil and gas prices. Consequently, government spending decelerated sharply from a 9.8% increase in 2014 to a 3.0% expansion in 2015. A silver lining became visible in investment, which maintained healthy growth last year despite a plunge in commodities prices and financial market volatility, particularly after the devaluation of the tenge on 20 August 2015. Gross fixed investment increased 4.1% in 2015, which marked only a moderation over the 4.4% expansion registered in 2014.
On the external front, exports of goods and services decreased 3.6% in 2015 (2014: -3.2%) as a drop in commodities prices and a deep economic recession in Russia took a heavy toll on the country’s exporting sector. On the other side of the balance, imports fell only a mild 0.6% in 2015, which was less pronounced that the 4.0% contraction registered in 2014.
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 now 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.
Author: Ricardo Aceves, Senior Economist