Manufacturers report impact of VAT increase in Kazakhstan
Kazakhstan’s manufacturing sector continued to contract in February, weighed down by a further decline in new orders and the lingering effects of January’s VAT increase, which pushed up input costs. In response, companies reduced staffing, purchasing activity and inventory levels.
The Freedom Holding Corp. Kazakhstan Manufacturing PMI fell from 49.8 in January to 48.1 in February. The reading remained below the 50.0 threshold that separates expansion from contraction for the second consecutive month, signaling a modest deterioration in operating conditions. Business performance worsened at the fastest pace since August of last year.
A key driver of the downturn was a sharper decline in manufacturing output. Production fell for the second straight month and at the fastest rate since October. Survey respondents attributed lower output primarily to weaker demand and a corresponding drop in new orders.
Facing reduced workloads, manufacturers cut employment for the first time in three months. Some firms reported placing workers on unpaid leave. Companies also reduced both purchasing activity and inventories of raw materials and finished goods.
Respondents said January’s VAT hike continued to drive up input costs in February. Although the pace of cost inflation eased slightly from January’s spike, it remained the second-fastest increase since November 2022. Output price inflation also moderated from January’s record level but stayed elevated as firms passed higher costs on to customers.
«Kazakhstan’s manufacturing sector appears to have entered a phase of active resource optimization amid a prolonged adjustment period,» said Yerlan Abdikarimov, head of Financial Analysis at Freedom Finance Global PLC. «The two-month decline in the PMI to 48.1 reflects weak domestic demand and a margin-protection strategy under increased tax pressure. Companies are implementing strict cost controls, including workforce and inventory reductions — measures typically adopted in periods of extended uncertainty.»
Despite the decline in output and new orders, manufacturers expressed stronger optimism about the year-ahead outlook than in January. Business confidence rose to a four-month high, with firms expecting improvements in customer demand. Many also cited planned investments and marketing initiatives as potential drivers of future growth.
According to Abdikarimov, sustained optimism over a 12-month horizon suggests that businesses view the current downturn as temporary and anticipate a recovery supported by investment and promotional efforts.
