Kazakhstan’s Macroeconomic Overview, July 2020

In July 2020, due to an increase in the incidence of COVID-19 in Kazakhstan the second strict quarantine was introduced, which will last at least a month. This measure restricts or prohibits some types of economic activity, which will negatively affect the country's economy and, as a result, will require adjustments to forecasts.

In June, most international organizations decreased their growth forecasts for real GDP of Kazakhstan. So, the IMF and the World Bank expect a decline by 2.7% and 3.0%, respectively. In comparison with these figures, forecasts by Moody's and ADB look pretty optimistic: -0.5% and -1.2%, respectively. Thus, there is a kind of consensus regarding economic development trend in Kazakhstan, although a single opinion on quantitative assessment is missing.

Based on the results of the first 6 months of 2020, Kazakhstan's real GDP decreased by 1.8%. The main growth drivers were construction (+ 11.2%) and manufacturing industry (+ 4.8%), while the largest drop in the volume index is registered in the services, which is explained by the introduction of strict quarantine at the beginning of the second quarter of this year. Meanwhile, looking at the dynamics of the business activity index (BAI) in Kazakhstan by National Bank of Kazakhstan (NB RK), which was equal to 46.8 in June, one could see a clear improvement in this indicator after a fall to 37.2 in April. The most significant improvement of BAI is in the service sector: 46.3 in June vs. 34.8 in April this year. That is, there is a tendency towards gradual recovery of business activity in the economy of Kazakhstan.

AERC also revised its forecast. This came as a result of improvements in the forecasting model and updating data on oil production in Kazakhstan as well as on the growth prospective of the trading partners of Kazakhstan. It should be noted that in order to build the forecasting model, AERC took GDP calculated by the expenditure method as a basis, while model / forecast calculations of the Ministry of national economy of the Republic of Kazakhstan (MNE RK) are based on the consideration of GDP by gross value-added method. Therefore, the results of the two models may differ.

AERC’s forecast is based on three main prerequisites: a growth of countries-trading partners of Kazakhstan will be -7.7%, the average oil price will stabilize around USD 40.5 per barrel, and the volume of oil and gas condensate production will be at the level of 84.9 million tons. Given these, the AERC’s forecast shows that the real GDP of Kazakhstan will drop by 4,6% year-on-year – this is a minimum since 1995. Also, the level of average annual consumer inflation will accelerate to 7.3%. According to the AERC’s forecast, the current account of the balance of payments will be USD -9.5 billion or -7.5% of GDP while the primary budget deficit will amount to KZT 3.2 trillion or 4.7% of GDP.