Kazakhstan macro: Driving smart over a bumpy road
The Bureau of National Statistics reported that in 1H22, the short-term indicator (a monthly proxy for GDP, which incorporates activity in industry, transport, agriculture, construction, trade, and communications) was up by 4.5% y-o-y. Overall, the figure doesn't look too bad amid the still strong base effects associated with "delayed" impact of the pandemic on Kazakhstan, and therefore, a rather uneven performance in various sectors. What looks less impressive is the country's high inflation, which in June reached 14.5%. High inflation eroded consumer demand, and retail sales growth remained sluggish. According to official statistics, it is currently at 1.2% y-o-y in 1H22, while in 5M22 y-o-y growth was higher (3.3%).
In recent years, inflation in Kazakhstan has been relatively high, while its m-o-m rate was stable. In 2022, inflation accelerated m-o-m in March and April. However, this was likely a one-off effect as amid the weakening of the tenge against the ruble, the passthrough effect for goods imported from Russia was strong (given that imports from Russia account for around 40% of total Kazakh imports). It also appears unlikely that the tenge might again fall against the ruble to below levels seen at the end of June. Meanwhile, deflation in Russia may also help ease inflationary pressure in Kazakhstan. Even though cumulative inflation is likely to be high this year, as m-o-m inflation decelerates and returns to Kazakhstan's "normal" rate, it won't be necessary to hike the policy rate, especially as higher costs of borrowing may further suppress domestic demand.
As foreign investments helped develop the Kazakh energy sector (as well as some others), the share of repatriated profits in the past twenty years recently stabilized at around 40%. This dependence of the Kazakh economy on foreign money has multiple implications, such as a relatively low external debt-to-GDP ratio if intra-company debt is excluded. Another implication is that Kazakhstan has to remain very pragmatic in its policies and find the right balance of relations between Russia and the West.
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