Projections of Kazakhstan’s economic growth in 2015 drop precipitously29 января 2015, 16:47
Kazakhstan will avoid recession in 2015, but its economic growth rate will be the lowest since the 1.2 percent it posted during the financial-crisis year of 2009, three of the world’s most prestigious development banks have forecast.
Just a few weeks ago, the Nazarbayev administration was predicting 4.8 percent growth in 2015.
Since then, the price of oil has continued a steep decline that started in late 2013, and Kazakhstan’s economy has suffered more fallout from Russia’s economic troubles, particularly a drop in the ruble.
That has prompted the European Bank for Reconstruction and Development to cut its forecast for Kazakhstan’s growth in 2015 to 1.5 percent, the World Bank to reduce its forecast to 1.8 percent and the International Monetary Fund to predict 2.3 percent growth.
The same financial institutions, and many other international economic experts, see Russia going into recession. Some forecasts are for the Russian economy to shrink as much as 5 percent.
That would be bad news for Kazakhstan, which has already suffered a multi-billion-dollar drop in exports to Russia because of the ruble’s decline.
The Nazarbayev administration made a good move when it announced in November of 2014 that it would pour an additional $10 billion into public-works projects between 2015 and 2018 to stimulate the economy, the International Monetary Fund suggested this week. In its latest world economic report it encouraged Central Asian governments to continue funding infrastructure projects to increase economic growth over the mid-term.
The money for what President Nursultan Nazarbayev called the Nurly Zhol stimulus program was to come from the National Fund, which Kazakhstan established expressly for times of economic travail.
A week ago the president did an about-face on stimulus spending. He said a deteriorating national budget situation required the government to postpone many infrastructure projects. Only projects that have already been started, but need to be completed, should be funded, he said.
In announcing the stimulus scale-back, the president was reading the same economic tea leaves that the development banks were, according to Kazakhstan economic experts. They expect the government to revise its 4.8 percent growth forecast for 2015 to as low as 1.5 percent soon.
Here are other findings in the development banks’ reports that have implications for Kazakhstan:
The European Bank for Reconstruction and Development, or EBRD, has increased its forecast for an economic contraction in Russia during 2015 from 0.2 of a percent in September of 2014 to 5 percent. That would mean that instead of having a flat economy, Russia would be deep in recession.
Kazakhstan officials forecast that the country’s growth would be 7 percent in 2014. The actual figure was 4.3 percent because of a drop in the price of oil and Russia’s economic troubles.
The 5 percent contraction in Russia’s economy that the EBRD is expecting in 2015 is a key reason for the lower growth projections in Kazakhstan.
The world as a whole will enjoy economic growth in 2015, the IMF predicts, but it will be lower than what it predicted in the fall of 2014 – 3.5 percent instead of the 3.8 percent it first envisioned.
Unlike the world as a whole, the economies of the 30 countries in Central Asia and the other regions the EBRD serves will suffer a collective contraction of 0.3 of a percent in 2015, the bank said. In September of 2014 it forecast that growth in its coverage area would be 1.7 percent in 2015.
“Even this (minus 0.3 of a percent) forecast is subject to considerable risks,” said Hans Peter Lankes, the bank’s acting chief economist. An additional drop in oil prices, an escalation of the Ukraine crisis or a deterioration in the Eurozone’s fragile economic situation could make the recession in the EBRD area worse, he said.
In addition to Central Asia, the EBRD serves Russia, other countries in the former Soviet Union, Eastern Europe and nations in the Southern and Eastern Mediterranean.
China’s economic growth is expected to be 6.8 percent in 2015, the IMF said, down from the 7.1 percent it forecast a few months ago.
The fact that China’s growth rate will remain one of the highest in the world is good news for Kazakhstan because of its expanding trade with its big eastern neighbor. Increased export revenue from China will help Kazakhstan offset the drop in income it’s expecting from lower trade with Russia this year.
The price of oil will average $57 a barrel in 2015, the IMF report said. Kazakhstan would need about $62 a barrel to cover its government spending, it said.It is revising its revenue forecast from $80-a-barrel oil to $50, Economics Minister Yerbolat Dosaev said last week.
Kazakhstan and other Central Asian countries should heed the latest lesson in the cyclical nature of oil and gas prices by accelerating their efforts to diversify their economies, the IMF said.
“In all oil-exporting countries, deepening economic reforms aimed at diversifying economies away from oil, and encouraging growth and job creation,” would be a smart move, it said.
Natural gas prices, unlike oil prices, are expected to remain steady over the next few years, the IMF said.
An obvious implication is that Kazakhstan, which is rich in both oil and gas, should consider increasing its gas production.
The IMF expects global metals prices to decline 13 percent more between 2015 and 2019 than it forecast in October 2014. That’s bad news for Kazakhstan because the second largest chunk of its gross domestic product, behind oil and gas, is metals.
Credit will continue to be tight in Kazakhstan, the EBRD predicted.
It pointed out that Kazakhstan’s bad-loan rate continues to be higher than 30 percent of all loans. That means that in 2015 Kazakh banks will be unable to increase their lending to a level that could rev up the economy.
An expected increase in U.S. interest rates will add to the tight credit situation in Kazakhstan and the rest of Central Asia in 2015, the IMF said. That’s because Central Asian banks will have to pay more for loans from American financial institutions.
The negative impact that Russia’s economic deterioration has had on its Central Asian and Caucasus neighbors suggests a “need for greater exchange-rate flexibility” in those countries, the IMF said.
That statement seemed to be an IMF call for devaluation of Central Asian currencies when necessary.
Many Kazakhs suffered from the surprise 19 percent devaluation in the tenge in February of 2014, and are afraid another is coming.
To try to calm the public, the National Bank of Kazakhstan has said that a new devaluation is not in the cards. But lots of Kazakhs are skeptical of that claim, particularly since many international financial experts are predicting another one.
Worries about a new devaluation have prompted thousands of Kazakhs to shift their tenge accounts to dollar accounts to hedge against a drop in the value of the tenge.
A slice of good economic news for Kazakhstan in the IMF report was a prediction that the country’s inflation rate will be a manageable 6.8 percent in 2015, the same as in 2014.
Inflation rates in other Central Asian countries are expected to rise in 2015, with the worst forecast a 13.8 percent rate in Tajikistan. That would be more than double Tajikistan’s 2014 rate of 6.1 percent.
Over-all, the development bank reports paint a grim picture of Kazakhstan’s prospects in 2015.
The hope inside and outside the country is that the tension over the Ukraine conflict won’t worsen to the point that Kazakhstan and its Central Asian neighbors are unable to avoid the recession that Russia will be experiencing.