Ukraine remains the headliner of world news, and the war is still the number one search query on Google. The war hits hard on the parties of the conflict, in which all countries are involved, at least indirectly. And we continue to live in a refracted reality from the war in Ukraine, as well as a possible new shock in East Asia. In March 2023, the Chinese leader called reunification with Taiwan the goal of "all Chinese sons and daughters," further adding to the nervousness that fighting in the South China Sea could disrupt world trade, 40% of which crosses the Taiwan Strait. Against this backdrop, a more rapid "opening of China" is still delayed. Although its GDP growth was 4.5% y/y in the first quarter of 2023, consumer demand in the Celestial Empire is still weak.
China's economic growth was the result of a strong increase in exports and investment, as well as a recovery in retail trade and property prices. At the same time the economy's growth rate still falls short of Chinese Communist Party’s current year target of 5%, but economists expect growth rates to pick up during the year. Industrial production and investment in fixed assets fell short of forecasts. Recovery is going according to plan, but not quite evenly. Meanwhile youth unemployment in cities rose to a record 20%. Bloomberg believes that lower-than-expected investment in China's fixed assets does not match the record credit expansion in the last quarter.
Given the ongoing uncertainty and the sign of monetary policy, the IMF in the April World Economic Outlook worsened its forecast for global economic growth in 2023 to 2.8% from 2.9% in January, GDP growth of developed countries will be 1.3% and developing countries - 3.9%. In January the World Bank generally predicted a sharper decline in the global economy growth to 1.7%. As a result the damage from the COVID-19 pandemic, high inflation, geopolitical risks (Ukraine and Taiwan) and the resulting fragmentation of countries into “interest groups” will hinder a faster recovery of the global economy.
The Kazakh economy, despite external shocks and recession threats, shows growth dynamics. According to the Prime Minister GDP growth in the first quarter of 2023 amounted to 4.9%. The growth was the result of an increase in construction, trade, transport, manufacturing and investment in fixed assets - by 16%.
Geopolitical shocks and sanctions against Russia are increasingly hindering the access of Kazakhstani exports to world markets, since the prevailing share of oil, metals and grain exports is exported through the territory of Russia. As a result, Kazakhstani exports in January-February 2023 grew by only 0.7%, while imports increased by almost 40% due to the restoration of supply chains. Moreover, exports to the CIS countries grew by 20% over the year, while export to the rest of the world fell by 3.3%. Imports from the CIS countries fell by 6.9%, while those from the rest of the world grew by 82%.
The good news is the more than 5-fold increase in oil supplies from the port of Aktau to Baku, bypassing Russia, although the volume still cannot fully cover the exports through Russia. In 2022 the export of Kazakh oil via alternative routes to Russia reached a total of 1.8 million tons. Meanwhile, CPC remains the main and most economically profitable route for oil exports, through which deliveries decreased by 1% in 2022.
Despite the risks of a recession and a protracted war in Ukraine, as well as an escalation of the conflict in Taiwan, AERC has improved its 2023 GDP forecast based on the Aggregate Demand Model. In this review, when forecasting macroeconomic indicators for 2023, AERC developed three scenarios in the Aggregate Demand Model of the SMAF modeling system: optimistic, baseline and pessimistic.
According to the base scenario AERC forecasts economic growth in Kazakhstan in 2023 under the Aggregate Demand Model at 4.3%, which is better than the previous forecast in the MOK for January 2023, according to the Aggregate Supply Model the forecast has not changed - 4.2%. For 2023 according to the base scenario due to the recovery of economic activity in China AERCforecasts an acceleration of inflation on average over the period up to 10.2% (against 9.8% in the MOK in January 2023), a small current account deficit of -0.2% of GDP (surplus of 2.3% in January 2023), the forecast for the state budget deficit remained unchanged at 4.1%.
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