Kazakhstan’s service sector sets new record

Kazakhstan’s services activity rose markedly in May and at one of the strongest rates in the series history which stretches back to March 2019. The Freedom Holding Corp. PMI® signaled a fifth successive monthly rise in business activity.

The uptick was underscored by a sharper rate of expansion in new business. However, service

providers remained reluctant to renew their hiring activity, with job shedding recorded for a third straight month. This reluctance could in part be explained by a more cautious outlook for activity in May. The level of optimism weakened notably from April.

The headline figure is the Business Activity Index

The index is calculated from a single question that asks for changes in the volume of business activity compared with one month previously. The index varies between 0 and 100, with a reading above 50 indicating an increase and below 50 a decrease. The index is adjusted for seasonal variation. As has been the case in each month since the turn of the year, the headline Business Activity Index posted above the 50.0 no-change mark midway through the second quarter. May’s figure of 54.3, up from 51.4 in April, signaled a stronger and sharp increase in business activity across the Kazakhstan service sector. Moreover, the pace of growth accelerated for a third month running to the fastest since July 2022, when the rate of expansion hit a survey high. In fact, the latest uptick was amongst the fastest recorded in the series history.

The rise in Kazakh service sector activity was largely linked back to strong growth in new business

The rate of expansion here quickened in the latest survey period, thereby stretching the current run of growth to seven months. New business also rose to one of the greatest degrees in the survey’s history. Monitored companies attributed the latest rise to new contract wins, marketing events, and a growing number of customers and tourists.

Kazakh service providers expressed strong positive sentiment for the year ahead outlook for activity in May

Nearly half the panelists anticipate their output to rise in the coming 12 months, compared to only around 13% that predict a cut. However, confidence fell for a second straight month to the weakest since November last year. The loss in confidence was linked to planned changes to VAT, as well as concerns surrounding economic stability.

The less upbeat outlook regarding activity prospects was reflected in firms’ reluctance to increase their payroll numbers despite strong growth of new orders. Employment was reduced for a third straight month in May. Albeit signaling only a fractional drop in staffing levels, the respective seasonally adjusted index signaled the most marked reduction in just over a year.

Turning to inflationary pressures, service providers based in Kazakhstan recorded a cooling in May. Input costs, though rising sharply, increased at a weaker pace than the series average. Where a rise was seen, however, survey respondents linked this to higher energy costs and unfavorable exchange rate movements of the tenge against the US dollar and Russian ruble. In line with cooling cost pressures, the rate of output price inflation also slowed from that seen in April. Increased competition meant that some firms raised their prices, however. Overall, charges rose solidly in May.

Kazakh private sector activity rises at strongest pace in two years

The latest Kazakhstan Composite PMI Output Index rose from 51.2 in April to 53.0 in May, its highest mark since the corresponding month two years ago. The uptick was driven by a strong expansion in service sector activity. Meanwhile, manufacturing output growth cooled and was only marginal. However, both the manufacturing and service sectors recorded faster increases in new business. Aggregate new orders rose sharply and to the greatest degree in two years.

Despite rising activity and demand requirements, private sector firms across Kazakhstan reduced their staffing numbers in May. The rate of job shedding was marginal overall and centered on service providers, however. The year-ahead outlook for activity eased to the lowest in 2025 so far as service firms recorded a notable drop in optimism. However, overall expectations remained stronger than the series average. The rate of input cost inflation eased to a four-month low, with output price inflation also softening on the month. Inflationary pressures were weaker than their respective long-run averages.

Yerlan Abdikarimov, director of the Financial Analysis Department at Freedom Finance Global PLC (100% subsidiary of the Freedom Holding Corp.):

«The surge in activity in the services sector has largely resulted from sustained domestic demand and the execution of new contracts. At the same time, it is important to note that economic uncertainty has increased – primarily due to tax reforms. The adverse impact of currency fluctuations and inflationary pressure has also continued to impact operating expenses, which continue to rise sharply. All of this has undoubtedly affected business sentiment and expectations for the year ahead. In such conditions, companies are logically focusing on prudent resource management and expanding their client base – one of the few stable priorities in the current environment.»

Earlier this week Kursiv.media wrote that while new order growth remained solid in Kazakhstan’s manufacturing sector in May, there were slowdowns in the rates of expansion of output, employment and purchasing activity, according to Freedom Holding Corp.