AERC worsens its forecast for economic growth and improves outlook for inflation in Kazakhstan

The Applied Economic Research Center (AERC) has updated its forecast for the economic development of Kazakhstan in 2024 based on key macroeconomic indicators. Analysts say that the country’s GDP growth won’t be as high as expected, while inflation will remain at the current level despite a slightly more negative previous prediction.

According to the center’s survey, GDP is set to grow by 4% by the end of December, two percentage points below the previous forecast published in April. The AERC has been worsening its economic outlook for two consecutive quarters due to slowing performance in several industries and a decline in investment in fixed capital.

The amount of investment in fixed capital dropped by 0.8% in the first quarter year-on-year and by 3.5% in the first half of the year. In contrast, the rate surged last year, increasing by 12.20% to $37 billion.

On the other hand, the AERC believes that inflation will stay at the current level of 8.4%. This figure was reported in late June after inflation had been slowing for the past 16 months. In April, the think tank predicted inflation would rise again to 9.1%. At that time, experts cited deteriorating forecasts for consumer demand growth from households. Even though the authors of the survey have become more positive about inflation, they warn that several factors could push the situation in a negative direction:

«Despite the annual price level in the country stabilizing, there are still some external factors that can affect the economy, such as the surging FAO Food Price Index (FFPI) and accelerating inflation in Russia. After three months of growth, the FFPI rate in June remained the same as in May. We have to watch the index performance closely,» the AERC noted.

The exchange rate of the tenge is expected to strengthen from 475 tenge per USD now to 461.10 tenge per USD by the end of the year. This forecast is slightly worse than the April version, which predicted a rate of 451.78 tenge per USD. The forecast was worsened against the backdrop of surging oil prices in the global market, experts said. As of July 31, the September futures for a barrel of Brent Crude Oil were traded at $79.90 on the Intercontinental Exchange (ICE) with a daily growth of 1.6%. According to the AERC, the average oil price could reach $87.50 per barrel.

The latest forecast from the AERC on Kazakhstan’s economic growth is one of the most positive among similar predictions from various international institutions and research organizations. The Eurasian Development Bank is the only entity that has given a higher evaluation of GDP growth in 2024 (5%). The country’s government insists that real GDP growth (adjusted for inflation) may be about 6%. In August 2023, the Ministry of National Economy aimed to reach this result by 2028.

The National Bank expects Kazakhstan’s economy to grow by 3.5% to 4.5% by the end of December. In turn, the World Bank, the International Monetary Fund, and the Asian Development Bank forecast the country’s economic growth at 3.4%, 3.5%, and 3.8%, respectively. The AERC published its forecast for July and August in late July. According to these estimates, inflation is expected to slow to 8.27% in July and 8.15% in August.