Economic landscape of Kazakhstan in the first quarter of 2024: analysis and trends

ASTANA – Kazakhstan saw a marked slowdown in gross domestic product (GDP) growth during the first quarter of 2024, falling to 3.9% after hitting record highs in the previous year, according to an April 29 analytical report by the National Bank.

The slowdown is primarily related to the stagnation of oil production, which is almost unchanged compared to the same period last year. Despite the dynamic development in industry, construction, transport and communication, the failure to compensate for the decline in the raw materials sector inhibited overall economic growth.

However, by the end of the quarter, inflation followed the projected downward trajectory, despite rising pressure from housing and utility costs. The stability of the exchange rate, supported by significant withdrawals from the National Fund, helped to contain price growth in Kazakhstan's import-dependent economy. However, natural disasters, particularly floods in March and April, have added uncertainty to economic forecasts.

According to the bank's forecasts, increased use of the National Fund, poor tax collection efficiency and uncertainty over the financing of flood damage could force the government to increase transfers from the National Fund to the budget by the end of the year, affecting key economic indicators, including GDP. growth, tenge exchange rate, inflation and base rate.

The banking sector maintains its GDP growth forecast at 4.5% per year, citing uncertainty over the direction of fiscal policy. Inflation, despite the decline, is still a concern, forecast at 8.5% by the end of the year.

Dynamics of investments and trade

Investments in fixed capital at the beginning of this year had volatile changes. After double-digit growth last year, it slowed to 7.9% year-on-year in the first two months of 2024, before falling sharply to 0.8% in the first quarter. This recession hampered the economic growth that coincided with the completion of the Tengiz field project. Investment in agriculture declined, while the non-commodity sector saw significant growth.

The improvement in foreign trade was due to the rise in oil prices against the background of geopolitical tensions and the measures of the Organization of the Petroleum Exporting Countries (OPEC) . Kazakhstan's trade balance for the first two months of 2024 increased by $0.7 billion compared to $3.4 billion a year earlier. Export growth was a modest 0.4%, while imports fell 7.4%. Exports to Russia fell by more than 20%, signaling a reduction in re-export operations, while Russian imports fell by almost 5%.

The bank's experts predict a slight improvement in the structure of the trade balance due to a moderate increase in demand for imports and stagnation of exports in the oil sector. This improvement is expected to reduce the current account deficit to 3% of GDP.

Stabilizing inflation and continued easing of monetary policy are set to boost investment, especially in utility infrastructure projects.

Industry analyses: oil, manufacturing and construction

In January-March 2024, the stagnation of production volumes in the oil sector continued compared to the same period last year, the indicators mirror the indicators of the first quarter of 2023. Crude oil production, including gas condensate, amounted to 7.8 million tons in January. , fell to 7.3 million tons in February and recovered slightly to just under 7.8 million tons in March. These changes are related to Kazakhstan's compliance with the obligations of the OPEC+ agreement for 2024 to reduce oil production to 82,000 barrels per day in the first quarter. Despite exceeding the quotas, the commitment was extended to the second quarter.

In the first quarter of 2024, the price of oil increased by about 2% quarterly and 0.6% annually, to an average of $83.1 per barrel. News of OPEC+ oil production cuts boosted Brent oil prices to $85 per barrel. Global hydrocarbons market fundamentals are expected to remain at current levels or potentially increase in Q2 2024. Optimism is due to the persistent shortage of oil supply due to the actions of OPEC+ and the recovery of demand, especially from China, whose GDP is expected to grow by 5.3% annually in 2024. the first quarter of 2024.

Despite an increase in metal ore production in Kazakhstan by 7.3% compared to the same period last year, the mining sector grew by only 1.9% in the first quarter of 2024.

The manufacturing sector was the main driver of industrial growth in the first quarter, increasing by 5.6%. A significant contribution was made by the production of ferrous metals (+11.5%), mechanical engineering (+24.9%), automobile construction (+9.8%) and other vehicles (+157.7%).

Positive changes occurred in the growth rate of the construction industry – 15.9% compared to 15.7% last year. The volumes of residential construction (+41.8%) and non-residential construction (+8.7%) were significant drivers.

In the transport sector, accelerated growth rates were observed, which reached 8.3%, mainly due to passenger transport (+11.1%), including an increase in air transport by 16.2%.

Modest growth was seen in the agricultural sector, where output grew by just 1.7% compared to 3.5% growth in the first quarter of 2023. The trade sector showed a significant decline in growth rates from 11.5% in the first quarter of 2023 to 3.3% in the first quarter of 2024, mainly due to low growth rates in wholesale trade (+2.6%). The share of non-food products decreased to 79.2% against 82.2% in the 1st quarter of 2023.