Kazakhstan: Revised data confirm economic deterioration in Q1
June 30, 2016
A sharp plunge in oil and gas prices, along with Russia’s protracted recession weighed heavily on the economy. Revised data confirmed that Kazakhstan’s GDP contracted 0.2% over the same period last year, which represented the economy’s first contraction since 2009. Kazakhstan’s GDP growth, which is reported on a cumulative basis, began to decelerate sharply in Q1 2015.
A more complete set of data for the economic sectors showed that a further contraction in the industrial sector and in services, were the main drivers behind Q1’s deterioration in Kazakhstan’s economy. Industry began to contract since the second half of 2015 and weakness carried over into the first three months of this year as the secondary sector contracted 0.8% on an annual basis. Meanwhile, ballooning inflation and weak domestic demand prompted services to deteriorate toward the end of 2015 and the sector continued to contract in the first quarter (Q1: -0.2% year-on-year). A silver lining to the strong drops observed in other sectors was an expansion in agriculture, which grew 2.9% year-on-year. Moreover, growth in the construction sector maintained a robust pace at the outset of the year.
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.
Author: Ricardo Aceves, Senior Economist