Kazakhstan’s Macroeconomic Overview, February 2021

2020 is over, but the crisis, triggered by the COVID-19 pandemic, continues to determine economic trends for 2021. The new "British" strain of coronavirus, which had been discovered at the end of 2020, showed that the problem with the pandemic has not yet been exhausted, and the "masked" social distancing regime may become the new "normality" to which one must adapt. At the end of 2020, according to the World Bank, the global economic decline was 4.3% - the deepest decline since the Second World War.

Under these conditions, both developed and developing countries had to apply unprecedented fiscal incentives to overcome the consequences of the imposed quarantine restrictions. The measures to stimulate the economies will be implemented in 2021. However, the fiscal stimuli necessary for the restoration against the background of simultaneously soft monetary conditions create risks for sustainable long-term economic development.

In particular, the injection of money to prevent the consequences of the US COVID-19 pandemic creates risks of inflating a financial bubble. Already in the second half of 2020, the stock market was growing amid not always adequate optimism about vaccinations and the recovery of economic activity, even though real macroeconomic indicators were negative.
At the same time, the dilemma "public spending - a public debt" is relevant for developed countries: anti-crisis measures lead to an increase in the public debt of the United States and many EU countries, which creates risks of financial instability for the entire countries.

While developed countries are grappling with the risks of a financial bubble and public debt, long-term inflation risks are relevant for emerging markets. Long-term inflation risks are the result of the current soft monetary conditions, which are already making themselves felt in the new 2021. The prices of industrial goods, according to Moody's, as of February 3 of this year. rose significantly on an annualized basis, which was cause for concern: Moody's Analytics Industrial Metals Price Index rose 30% year-over-year. According to the Wall Street Journal, February 3 this year. steel price (HRC USA FOB Midwest Mill) is up 98% year over year. According to the same source, the price of iron ore exceeded the previous year's figure by 89%. The price of WTI crude oil rose 11% on an annualized basis - to the highest level since January 20, 2020.

In 2021, the Kazakhstani economy is facing separate internal risks of local bubbles arising from stimulating fiscal policy, which takes the form of financial repression in connection with the use of the selective concessional lending instrument. A wide class of government programs creates a dangerous precedent in both the banking sector and the country's mortgage market.
These and other events are driving economic trends for 2021. In its macroeconomic review of Kazakhstan for 2021, AERC relies on the following assumptions:

- the price of Brent crude oil will be formed on average in 2021 at the level of $ 48.5 per barrel;
- the economies of the trading partner countries in 2021 will grow by 4.5%;
- the volume of oil and gas condensate production in Kazakhstan in 2021 will be at the level of 86 million tons.

Under these conditions, according to the AERC forecast, the real GDP of Kazakhstan in 2021 will grow by 4,8%. This result is the consensus of the AERC aggregate demand and aggregate supply models. At the same time, consumer inflation will slow down in comparison with 2020 and will amount to 6,5% in 2021. The current account of the balance of payments of Kazakhstan, according to the AERC forecast, taking into account the gradual recovery of exports and imports in 2021, will develop with a deficit of 9.4 billion USD, amounting to -5% of GDP.