Author: Head of the Analytical Center of Halyk Finance, Madina Kabzhalyalova
By the end of 2024, the physical volume index of trade increased by 9.1%, with retail trade growing at a faster pace (9.8%) compared to wholesale (8.6%). Trade is one of the key sectors of the economy, contributing 16% to GDP. In 2024, it served as the main driver of economic growth, despite a downturn in the mining sector. However, such high growth rates raise questions and are often deemed anomalous, as they contradict fundamental factors that typically influence trade dynamics. For instance, retail trade grew significantly faster than historical and macroeconomic trends, even amidst weak growth in real incomes and wages. By the end of the year, wholesale trade also showed quite high figures, although they lagged significantly behind the record double-digit numbers of 2023, when such growth was supported by high government spending and investments in fixed capital in the mining sector. Government funds continue to be an important source of financing for fixed capital investments this year, which largely determined the acceleration of wholesale trade growth in the second half of 2024.
Overall, despite positive results, the dynamics of trade were accompanied by contradictory factors, which may indicate the unsustainability of such growth in the future.
It is worth noting that trade is one of the systemically important sectors of the economy that shapes GDP, accounting for almost 16% of its structure, surpassing the mining and manufacturing sectors. Therefore, analyzing its dynamics and key components is crucial for assessing the overall economic development of the country, identifying key trends and factors affecting the stability and competitiveness of the national economy, as well as for making economic growth forecasts. Against the backdrop of significant stagnation in the mining sector, it was trade that ensured GDP growth in the second half of 2024 and an economic increase of around 4%.
By the end of 2024, the physical volume index of trade increased by 9.1%, with wholesale trade growing by 8.6% and retail trade by 9.8%. Traditionally, wholesale trade dominates the structure of trade, accounting for 67.5%, while the share of retail trade is 32.1%. The results of the year and the annual trade growth dynamics were largely ambiguous and unexpected.
In January 2024, there was a sharp decline from the record growth values of 2023, dropping from 11.3% year-on-year to 3.5% year-on-year. When looking at historical trade growth figures at the beginning of previous years, such a sharp decline was not observed, except during the pandemic, indicating that this is not a seasonal trend. Following this, throughout the year, trade growth rates rapidly increased, with only a slowdown in February and April, adding almost one percentage point each month. The main driver of this growth can be attributed to retail trade, which showed growth rates of 6% and above from the second quarter of 2024, finishing the year with nearly 10% growth.
Additionally, the structure of growth last year for wholesale and retail trade differs significantly from the figures of 2023. Both retail and wholesale trade grew at record rates in 2023, while wholesale maintained double-digit growth throughout the year. We believe that such values in 2023 were largely achieved due to the re-export of goods to Russia and the associated benefits for the country. Exports to Russia increased by 40% in 2023 compared to 2021. The strengthening of sanctions compliance and the risk of secondary sanctions led to a gradual winding down of re-export operations, contributing to the overall slowdown in trade, particularly in wholesale, last year.
Figure 1. Trade Dynamics (Wholesale and Retail) in 2024
Furthermore, the high wholesale trade figures in 2023 were sustained by the dynamic development of the mining sector and increased investments in fixed capital within it. In 2024, there was a significant decline in fixed capital investment in this sector, dropping by 23.3% year-on-year over the first 11 months of 2024, and throughout the previous year, a reduction in imports was observed, which decreased by 3.3% year-on-year by the end of the first 10 months of 2024. Nevertheless, in the second half of last year, there was a noticeable increase in the growth rates of wholesale trade, reaching 8.6% year-on-year by the end of the year. One of the reasons for this increase is the stimulation of spending by the government, which allowed fixed capital investments to emerge from negative dynamics. The role of the state budget in financing investments has significantly increased. The share of budget funds in the total volume of investments rose to 20.2% over the first 11 months of 2024, compared to 14.5% in January-June 2024.
Retail trade became the main catalyst for the anomalous growth of trade in 2024. This again contradicts historical data. Over the past 10 years, the average annual growth of retail trade barely reached 4%; in 2023, this growth was 5.2%, and in 2024, it soared to 9.8%. Previously, we published an article on the anomalous growth of retail trade last year, noting that such growth was part of a divergent movement with key indicators traditionally affecting its dynamics. For instance, real incomes of the population have hardly grown over the past two years, and the growth rates of real wages, despite some recovery due to slowing inflation, lagged significantly behind the growth rates of retail trade and past year’s figures. Thus, from January to September, real wages increased by 2.9% year-on-year, while real incomes declined by 0.2% year-on-year over the first 10 months of 2024. The increase in consumer lending only partially compensated for the drop in incomes, supporting retail trade. At the same time, the current contradictory trends are indirectly evidenced by the dynamics of consumer imports, which have been declining throughout the year despite rising consumption.
Notably, the structure of retail trade in the past year remained virtually unchanged compared to 2023, with the share of food products at around 33% and non-food products at 67%. However, significant changes occurred in the channels of retail trade by the end of 2024 – while in December 2023, trading enterprises and organizations significantly dominated (62%) compared to individual entrepreneurs, including those trading in markets (38%), by December 2024, the share of the latter increased significantly – to 45%. It is unclear what could have caused such a significant increase in the share of the smaller retail channel. To eliminate the shadow of illegal business activities, since last year, individuals receiving mobile transfers from 100 or more persons monthly for three consecutive months (indicating signs of entrepreneurial activity) are subject to scrutiny by tax authorities. This may have been one of the reasons for the growth of retail trade, as well as the share of individual entrepreneurs, who were the main users of mobile transfers and many of whom switched to payments using POS terminals and QR codes. It is worth mentioning that there is no official statistics on how this increased control affected the volumes of official trade; therefore, the argument above remains a hypothesis.
Thus, there is no definitive answer as to why the dynamics of both wholesale and retail trade changed so drastically starting in May 2024. Imports and fixed capital investments, which should primarily determine the movement of wholesale trade, showed very modest figures throughout the year compared to 2023, and even a decline. Real incomes and consumer lending also do not shed light on the dynamics of retail trade, which saw growth nearing 10% by the end of 2024. Moreover, real incomes even showed a slight decline.