Kazakhstan’s Macroeconomic Overview, July 2021

The corona crisis continues to determine the global political and economic agenda. Mass vaccination in the world has allowed governments and inter-national financial institutions to proclaim the end of the acute phase of the pandemic. 

Significant fiscal stimulus and soft monetary conditions improved economic prospects, but accumulated higher inflation, that is already a new challenge for macroeconomic policies in many countries. For example, the word "inflation" was mentioned in 87% of conference calls in the second quarter of 2021 for S&P 500 companies tracked by Bloomberg, up from 33% in the same period the year earlier. Many emerging markets have begun to tighten monetary policy simultaneously with reducing fiscal stimulus. 

In turn, the Bank of Russia has shifted to a moderately tight monetary policy in March of this year, and on July 23, 2021, decided to revise the key rate again, increasing it to 6.5% in response to the strengthening of inflationary trends: inflation in June was 6.5% in annual terms, that is the maximum since August 2016.

The NBK is also forced to response to the acceleration of inflation, which in June increased to 7.9% from the same period of last year, almost reaching the “psychological level” of 8%. AERC expects that on July 26, 2021, the Technical Committee of the National Bank will raise the base rate from 9.00% to 9.25%.

Kazakhstan’s economy is entering the growth track. According to the Prime Minister Asskar Mamin economic growth in the first half of 2021 increased 2.2% from the same period last year. We can talk about the beginning of the recovery assuming adjustment for the effect of the low base. However, the rhetoric of the authorities gives an understanding that a new lockdown may negatively affect to the beginning of the positive dynamics of the economy growth.

In this Macroeconomic Outlook for Kazakhstan 2021, AERC report is based on the following assumptions:

The Brent crude oil price will average $65/bbl in 2021;
The economies of the trading partner countries will grow by 4.9% in 2021;
The volume of oil and gas condensate production in Kazakhstan in 2021 will be 86 million tons.

Under these conditions according to the AERC forecast the real GDP of Kazakhstan in 2021 will grow by 3.9%. This result is the consensus of the aggregate demand and aggregate supply models considering the aforementioned assumptions. Recall that in April, GDP growth for 2021 was predicted by AERC at the same level. The consumer inflation forecast for 2021 compared to the April AERC’s forecast was adjusted downward from 7.4% to 7% due to the expected tightening of the monetary policy of the NBK and the measures taken by the Government to contain prices.