ASTANA – Kazakhstan experienced a notable deceleration in gross domestic product (GDP) growth during the first quarter of 2024, dropping to 3.9% after achieving record highs the previous year, according to an April 29 analytical report by Halyk Bank.
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The slowdown was primarily attributed to stagnation in oil production, which remained nearly unchanged compared to the same period last year. Despite dynamic development in the manufacturing, construction, transportation, and communication sectors, the inability to compensate for the decline in the raw materials sector hindered overall economic growth.
Inflation figures, however, followed a predicted trajectory of decline by the end of the quarter, despite pressure from rising housing and utilities costs. The stability of the exchange rate, bolstered by significant withdrawals from the National Fund, contributed to curbing price growth in Kazakhstan’s import-dependent economy. However, natural disasters, including floods in March and April, added uncertainty to economic predictions.
According to the bank forecasts, increased use of the National Fund, underperformance in tax collection, and uncertainty about flood damage financing may force the government to boost transfers from the National Fund to the budget by year-end, affecting key economic indicators, including GDP growth, tenge exchange rate, inflation, and the base rate.
The banking sector maintains its GDP growth forecast at 4.5% for the year, citing uncertainty in fiscal policy direction. Inflation, while declining, remains a concern, with forecasts at 8.5% by year-end.
Investment and trade dynamic
Investment in fixed capital saw volatile shifts at the start of this year. After double-digit growth rates last year, it slowed to 7.9% year over year in the first two months of 2024, then sharply dropped by 0.8% for the first quarter. This decline hindered economic growth, coinciding with the Tengiz field project’s completion. Agriculture investments decreased, while the non-raw materials sector saw robust growth.
Improvements in external trade were driven by rising oil prices amid geopolitical tensions and the Organization of the Petroleum Exporting Countries (OPEC) measures. Kazakhstan’s trade balance in the first two months of 2024 increased by $0.7 billion compared to $3.4 billion a year earlier. Export growth was modest at 0.4%, while imports decreased by 7.4%. Exports to Russia dropped over 20%, signaling reduced re-export operations, with Russian imports falling nearly 5%.
Bank experts anticipate a slight improvement in the trade balance structure due to modest import demand growth and stagnant oil sector exports. This improvement is expected to moderate the current account deficit to 3% of GDP.
Stabilizing inflation and ongoing monetary policy easing are poised to boost investments, particularly in communal infrastructure projects.
Sectoral insights: oil, manufacturing, and construction
In January-March 2024, the oil sector continued to experience stagnant production volumes compared to the same period last year, with figures mirroring those of the first quarter of 2023. Crude oil production volumes, including gas condensate, were at 7.8 million tons in January, dropped to 7.3 million tons in February, and slightly recovered to just under 7.8 million tons in March. These changes are attributed to Kazakhstan’s compliance with OPEC+ agreement obligations for 2024 to cut oil production to 82,000 barrels per day in the first quarter. Despite exceeding the quotas, commitments were extended into the second quarter.
In the first quarter of 2024, the price of oil rose by approximately 2% quarterly and by 0.6% annually, averaging $83.1 per barrel. News of OPEC+ oil production cuts raised quotes to $85 per barrel for Brent crude. The global hydrocarbon market’s fundamental dynamics are expected to remain at current levels or potentially increase in the second quarter of 2024. Optimism stems from persistent oil supply shortages due to OPEC+ actions and recovering demand, especially from China, whose GDP grew by 5.3% annually in the first quarter of 2024.
Despite a 7.3% increase in metallic ores production in Kazakhstan 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 primary driver of industrial growth in the first quarter, expanding by 5.6% . Notable contributions came from ferrous metals production (+11.5%), machinery (+24.9%), automobile manufacturing (+9.8%), and other transport vehicles (+157.7% ).
Construction industry growth rates saw positive changes, reaching 15.9% compared to 15.7% the previous year. Residential building construction (+41.8%) and non-residential construction volumes (+8.7%) were significant drivers.
The transportation sector experienced accelerated growth rates, reaching 8.3%, driven mainly by passenger transportation (+11.1%), including a 16.2% increase in air transportation.
Modest growth was observed in the agricultural sector, with output growing by only 1.7% compared to the 3.5% growth in the first quarter of 2023. The trade sector showed a significant decrease in growth indicators from 11.5% in the first quarter of 2023 to 3.3% in the first quarter of 2024, mainly due to low growth in wholesale trade (+2.6%). The share of non-food products decreased to 79.2% compared to 82.2% in the first quarter of 2023.
