ASTANA – The Kazakh economy kicked off 2025 strong, said the World Bank in their March update for the country.
Photo credit:primeminister.kz
Key details from the update
“Early economic indicators suggest a solid start to 2025, with the latest PMI data pointing to robust growth in both manufacturing and services. The composite PMI climbed to 51.3 in February, up from 50.4 in January, signaling continued expansion. The manufacturing PMI surged to 54.0,” reads the report.
Ivailo Izvorski. Photo credit: The Astana Times
World Bank estimates inflation at 9.4% in February, indicating a price increase observed across all components of the consumer basket. Food prices increased by 6.5% year over year, non-food by 8.7%, and services by 14.1%.
“Both demand and supply-side pressures are at play. Excess demand was exacerbated by pro-cyclical expansionary fiscal policy and rapid credit growth, including state-backed subsidized lending. On the supply side, inflation is being pushed higher by steep hikes in regulated utility prices [16.3% in February] and rising import costs [6.5% in February[ owing to past currency depreciation,” reads the report.
Experts note in the report that the growth in inflation expectations by 13.7% in February could stem from the government’s announcement that inflation could rise a bit due to the planned increase of a value-added tax.
“With inflation expectations still unanchored, restoring confidence and bringing inflation back to the 5% target will remain a significant challenge,” reads the report.
Shifting trade dynamics
According to World Bank, Kazakhstan’s trade also “took a hit” in January. Goods exports dropped by 13.4% year-on-year, driven by a 13.7% decline in crude oil shipments and an 11.9% fall in oil prices. Given that oil accounts for nearly 65% of total exports, the downturn had a significant impact on trade dynamics.
“Imports also contracted, falling 5% y-o-y, with machinery and equipment imports dropping 10.5% y-o-y. As a result, trade balance shrank by nearly a quarter in January but remained positive at $1.6 billion,” reads the report.
The European Union maintained its status as Kazakhstan’s top export market, particularly for energy products. EU’s share in the country’s exports went upward from 40% in 2021 to 46.7% in 2024. Imports grew from 14.4% to 17.8%.
Economic growth projections
The World Bank’s latest Global Economic Prospects report warns that developing economies, responsible for 60% of global growth, are on track to close the first quarter of the 21st century with their weakest long-term growth forecast since 2000.
“We see this dramatic slowdown in productivity growth and output growth across the world. It’s not just developing countries, also among the advanced economies, the developed economies, we see this growth slowdown from the first decade of this century to the most recent years,” said World Bank Chief Economist for Europe and Central Asia Ivailo Izvorski in an interview with The Astana Times.
Kazakhstan’s economy is projected to grow by 4.7% this year, mostly due to a pickup in oil production, according to Izvorski. The growth will moderate to 3.5% in 2026. Izvorski said the Kazakh economy’s slow pace of diversification and reliance on hydrocarbons remains a persistent risk.
“Therefore, it is a fairly narrow output structure, and that clearly affects it through external shocks. If there is a slowdown in global demand or declining global prices, or vice versa, a huge hit to prices, the economy is very vulnerable to that. Certainly, the world is in a bit of an interesting phase,” said Izvorski.
“Fiscal policy, clearly, is something that needs to be watched. The government is talking about changing some of the tax rates; obviously, that has to be implemented in a way to both reduce the impact of negative shocks on the population but also ensure that macro stability, as has been the case over the last decades, continues to be sustained for the benefits of everybody,” he said.
Role of AI
Officials should also remain vigilant about other potential factors influencing the economy, including the impact of artificial intelligence.
“Is it going to affect growth potential substantially? Is it going to result in an increase in inequality across countries and within countries? I think this is important domestically,” he added.
Izvorski explained its impact could unfold in three ways. It can replace jobs with routine and repetitive tasks, enhance productivity by augmenting human capabilities, or create new jobs.
“There are a lot of examples. For example, people working in call centers that have access to AI that can supplement the information base. They are much more efficient, some 40%, according to estimates, more efficient. People reading X-rays are much more efficient using AI,” said Izvorski.
However, the dominant impact – whether AI replaces, augments, or generates more jobs – will hinge upon the strength of innovation, according to Izvorski, and how governments respond.
When asked about his take on AI, he pointed out that the impact of new technologies often follows a pattern of short-term optimism but underestimated medium and long-term consequences.
“I think it usually turns out to be the other way around. Usually, in the short term, the impacts are much more modest as people figure out what is going on. The impact over the long term certainly is going to be very profound,” he added.
A decade from now, AI and automation could significantly boost economic growth and raise income levels, but that trajectory is far from guaranteed, as it will depend on how governments respond.
For a complete conversation, follow the link to the YouTube channel of The Astana Times.
