The commodity-dependent Kazakh economy is experiencing one of its toughest years in over a decade as a result of low oil and other commodity prices together with a slowdown in major trading partners China, Russia and the EU.
Following the plunge in oil prices the Kazakh economic growth eased sharply from 4.2% in 2014 to 1.2% in 2015 and 0.4% in the first three quarters of 2016. While growth was originally expected by the government to slow down to 0.5% in 2016, it was boosted by an increase in oil production thanks to the launch of the giant Kashagan oilfield at end October.
But after nearly two years of economic slowdown, Kazakhstan is widely expected to turn the corner in 2017. Such projections are visible in both outlooks by international observers and the Kazakh government’s expectations. Following OPEC’s push to raise world oil prices, the hydrocarbon-reliant Central Asian country’s growth is mainly contingent on gradually ramping up its oil production to its previous levels.
Continued acceleration in growth is expected to be driven by the impact of structural reforms focused on the business climate and public administration and an unlocking of bank lending.
Over 9m16, the current account deficit reached $5.2bn. For the fourth quarter of 2016, bankers expect exports to continue improving thanks to the Kashagan oil project which finally resumed its operations in October, as export revenues from the field will support the balance of payments.
Sberbank projects a current account deficit of $5.5bn-$6.0bn for the full year and a $1.5bn deficit in 2017, based on the assumption of a mild rise in oil prices.
Oil production in 2015 declined by 1.7% to 79.6mn tonnes and is expected go down further to 75mn tonnes in 2016, accounting for Kashagan. However, the government expects Kashagan to add between 4mn-7mn tonnes of oil to the country’s production, bringing up the country’s overall production plans to approximately 85mn tonnes.
The IMF has urged the government to pay special attention to agriculture and transportation sectors within its overall modernisation and diversification planning. The institution projects annual growth to reach 2.5% in 2017. Yet, vulnerabilities remain in the financial sector weakness, which should be addressed.
A narrow gauge of GDP, which accounts for 60% of the economy, saw 3.8% growth in January. These figures reflect expansion in the oil, transport and trade sectors. Within a month of its operations Kashagan produced over 480,000 tonnes of oil, bringing Kazakhstan’s daily output to approximately 234,000 tonnes in November.
Continued acceleration in production, of course, hinges on Kazakhstan’s participation in a joint oil cut of 558,000 barrels per day by 11 countries as OPEC’s request. While Kazakhstan agreed to cut its output, several factors imply the agreement largely won’t interfere with the country’s production forecasts. Kazakh Energy Minister Kanat Bozumbayev told media the cut will “likely” amount to 20,000 tonnes from the November-level. Moreover, the output-cut deal will only stand for six months starting from January. While the deal is renewable, it still remains to be seen if Kazakhstan will maintain its commitment in the second half of 2017.
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