ADB predicts Kazakhstan's GPD to slow down to 1.5 percent in 2015

The Asian Development Bank (ADB) predicts the GDP growth in Kazakhstan in 2015 to slow down from the previously predicted 1.9 percent to 1.5 percent, Tengrinews reports citing RIA Novosti. The forecast was lowered because ADB expects the growth to suffer from lowering private consumption in response to higher import prices, and from diminished private investment due to falling profits.

In 2016, given the investment in the organization of the international exhibition EXPO-2017 and the projected increase in the competitiveness of Kazakhstan's export, ADB expects the growth to recover to 3.3 percent. This estimate, however, is lower than the previous March forecast of 3.8 percent. “Exports are expected to recover modestly in 2016, which will ease the current account deficit despite slightly larger demand for imported goods and services in preparation for the Expo 2017,” the Asian Development Outlook 2015 Update for Kazakhstan said.

ADB also lowered the growth forecast for Central Asia. The regional growth is projected at 3.3 percent in 2015, and 4.2 percent in 2016. This forecast is lower than the previous projections (3.5 percent and 4.5 percent respectively) due to the region's economic adjustment to lower commodity prices and recession in Russia. According to ADB, reduced export earnings due to lower oil and gas prices inhibit growth in Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan.

Additionally, Kazakhstan’s GDP growth is constrained by the net outflow of capital from the region. “In the first quarter of 2015, net outflows from the emerging Central Asian markets exceeded $125 billion. The capital outflow remains a concern since investors were anticipating a US interest rate hike and as a consequence, the region has seen a risk premium rise and weakening of national currencies that threaten to further slow down the region’s growth,” ADB’s report on emerging Central Asian countries said.

“While still recovering from the 2014 devaluation, low oil prices, and ruble depreciation, Kazakhstan’s economy suffered a further shock from the early move to a freely floating exchange rate and the resulting depreciation of the tenge,” ADB said.

According to ADB’s analysis, in the second half of 2015, the tenge devaluation will stimulate import prices, particularly for nonfood imports with limited scope for substitution, and thus spur inflation, which is now expected to be higher by half in 2015 than in the previous projection of March 2015. Consequently, inflation in the Central Asian region is projected at 8.1 percent in 2015 and 7.5 percent in 2016, states the report.

According to the report, the new inflation targeting regime will need to find a balance between high interest rates that could further inhibit economic growth, and high inflation rates that could cause further devaluation of the tenge and thus spur import prices. In the medium term perspective, however, benefits from a more competitive exchange rate are expected to materialize, concludes the report.

By Indira Urazova, editing by Tatyana Kuzmina