The Kazakhstan Analytical Center AFC has presented a forecast for the main macroeconomic indicators of Kazakhstan at the end of 2023.
Contrary to pessimistic forecasts of a global economic recession, 2023 concludes with positive results for Kazakhstan in terms of global economic growth. According to the IMF's October report "World Economic Outlook," global economic growth for the current year is estimated at 3%, compared to the previous year's estimate of 2.7%, Forbes.kz reports.
Simultaneously, the battle against inflation through a significant increase in base interest rates has borne fruit, gradually easing inflationary pressures. Against this backdrop, expectations are growing for the normalization of monetary and credit conditions in both developed and developing countries. However, certain trading partners of Kazakhstan, such as Russia with rising prices and China with deflation, are noted to influence domestic prices due to their high concentration in the import sector (Russia – 27%, China – 26%). Existing macroeconomic imbalances, including a chronic budget deficit, a high concentration of energy resources in export goods, and strong dependence on imports, will maintain the economy's heightened vulnerability to the unstable dynamics of the external environment.
Economic Growth Enters a New Pace of 4%+
Sustainable domestic demand has offset the negative impact of lower commodity prices. It is noteworthy that, from January to November 2023, the average Brent oil price stood at $82.6 per barrel, 19% lower compared to the same period last year (100.4). Nevertheless, the country's GDP for the current year is highly likely to surpass the 4% mark (4.9% for January-November 2023) due to growth in construction, trade, communications, and transport (exceeding 7%).
Meanwhile, the implementation of infrastructure projects, planned increases in raw material extraction (up to 95.4 million tons), and budgetary stimulus will support economic activity in 2024. Financial market experts expect GDP to increase by 4% in 2024.
The Tenge's exchange rate may conclude 2023 with strengthening, albeit facing pressure in 2024.
After three years of weakening, the national currency's exchange rate against the dollar may conclude 2023 with symbolic strengthening, supported by high volumes of currency sales from the National Fund. Recall that, at the end of 2022, the Tenge weakened by 7.1% to 462.66 Tenge per dollar (current rate - 456.5 Tenge).
However, in 2024, the USD-KZT exchange rate may rise to 489.6 Tenge, 7.3% higher than the current level. Pressure on the Tenge may result from declining demand in the commodity market, the continuation of the policy of high rates in the U.S. amid further normalization of monetary and credit conditions in Kazakhstan, continued import growth due to infrastructure project implementation, a complex geopolitical situation in the region, and a general investor flight from risk.
CPI to Halve in 2023, but No Similar Dynamics Expected in 2024
By November, consumer prices had grown by 10.3% year-on-year, which is half the rate compared to the end of 2022 (20.7%). Thus, the president's directive to halve inflation in Kazakhstan this year has already been fulfilled.
However, the double-digit inflation seen in the country for the past 20 consecutive months may turn into a single-digit figure in the first quarter of 2024 (i.e., fall below 10%). Nevertheless, economic acceleration with stimulating budget policies will hinder the return of the CPI to the target of 5% over the next 12 months. According to financial market analysts, inflation in December 2024 is expected to be 10.6%.
Significant Room for Further Reduction of the Base Rate Persists
In 2023, the base rate was reduced three times, from 16.75% to 15.75% annually. Considering the ongoing inflation slowdown, there is significant room for further reduction of the base rate. While it was reduced by 100 basis points in 2022, experts expect a further reduction of 325 basis points in 2024 – to 12.5% annually.
Thus, the high positive value of the real interest rate in the economy may decrease by almost three times (from the current 5.45% to 1.9%), negatively affecting the attractiveness of tenge assets and the currency exchange rate under equal conditions.
The Banking Sector Will Continue Stable Growth Alongside the Economy
The growth of total assets in the banking sector in 2023 is slowing down from double-digit figures in recent years (average of 18.5% over the last three years) to a single-digit increase (8.6% for January-November 2023). However, economic entities' lending remains in double digits, with the BVU loan portfolio growing by 16.5% for January-November 2023.
The growth of retail lending will continue to slow down, influenced by natural saturation of demand, high credit penetration (the ratio of borrowers to the employed population is 85%), a high base from the previous year, and potential regulatory tightening.
Corporate lending sees an increase in loan issuance and approval rates amid improving macroeconomic conditions in the country. Further normalization of monetary and credit conditions and potential regulatory measures to stimulate will support further growth in business lending.
P.S. AFC is the Association of Financiers of Kazakhstan, uniting 128 participants in the financial market, including banks, insurance organizations, mortgage and leasing companies, microcredit organizations and pawnshops, JSC "ENPF," professional participants in the securities market, audit and consulting companies, educational institutions, and media outlets in Kazakhstan.
CentralasianLIGHT.org
December 14, 2023