Oil, inflation, and the dollar: Kazakhstan's outlook for 2025.
The Analytical Center of the Association of Financiers of Kazakhstan (AFK) outlined the main macroeconomic risks for the country in the upcoming year, as reported by inbusiness.kz.
The growth rate of the global economy is expected to stabilize around 3.2-3.3% in 2024-2025, marking the first break in the downward trend in the last three years (IMF, October report "World Economic Outlook"). The approaching inflation in the USA and EU towards the target of 2% will create conditions for further normalization of monetary and credit policies in these countries. Combined with China's plans to ease monetary policy and increase budget expenditures, this will stimulate global economic activity in 2025. However, significant uncertainty will remain regarding the prospects of trade relationships between the largest economies in the world and potential geopolitical changes following the new administration in the White House.
For Kazakhstan, the most significant risk in 2025 may stem from a further decline in commodity prices due to the anticipated increase in shale oil production in the USA and greater tolerance from OPEC+ towards current prices (a number of restrictions will expire in the first quarter of 2025). Such a scenario could adversely affect key macroeconomic indicators (economic growth, trade balance, current account, budget revenues and the National Fund, national currency exchange rate, inflation), severely complicating efforts to diversify the economy and improve the well-being of Kazakhstanis.
The economy remains above 4%
Against the backdrop of stagnating oil production and lower commodity prices, economic growth this year is expected to fall significantly below last year's figure of 5.1% and the target level of 6%. Nevertheless, the country's GDP may exceed 4% this year (4.1% from January to September) due to growth in trade, telecommunications, transport, construction, and agriculture (above 6%), supported by additional transfers from the National Fund.
However, the planned increase in raw material production (up to 97.2 million tons), the implementation of large infrastructure projects, and high budget expenditures (33.5 trillion tenge in 2025) may outweigh the negative impact of low commodity prices and high interest rates. Financial market experts expect GDP growth in 2025 to be 4.4%.
The tenge exchange rate may end 2024 with double-digit depreciation and will remain under pressure in 2025
After a moderate strengthening (1.7% by the end of 2023), the national currency's exchange rate against the dollar may end 2024 with a decline of over 10% due to significantly higher domestic demand for foreign currency than its supply.
In 2025, the USDKZT exchange rate may rise to 545.2 tenge (+6% from the current value). Pressure on the tenge may arise from low commodity prices, a decrease in oil production due to the necessity of adhering to OPEC+ agreements, slowing economic growth among major consumers of Kazakhstani raw materials (China and the EU), increasing imports, including due to the implementation of investment projects, deteriorating expectations regarding the exchange rate, a complicated geopolitical situation in the region, and a general flight of investors from risk.
The fight against inflation will remain on the agenda in 2025
Inflation in Kazakhstan by the end of 2024 may be closer to the upper limit of the updated forecast from the National Bank of Kazakhstan for the current year at 8-9% (if the monthly CPI is 0.9% in December, the annual figure will be 8.7%).
A weakening exchange rate, expansionary fiscal policy, reforms in paid services, certain domestic economic challenges on the supply side (e.g., low labor productivity, high production costs, weak economies of scale, high concentration), and heightened inflation expectations will hinder the return of the CPI to the target of 5% over the next 12 months. Financial market analysts expect inflation in December 2025 to be 9.5%.
Monetary conditions will remain tight
The base rate is expected to return to its January 2024 level by the end of 2024 (i.e., almost all reductions throughout the year have been offset by a rate increase of 100 basis points in November).
At the same time, high inflationary risks in the economy may necessitate a prolonged maintenance of tight monetary conditions: in a year, the base rate is forecasted at 14.25% (-100 basis points from the current level).
Thus, the real interest rate in the economy may decrease from the current 6.85% to 4.75%, which will negatively affect the attractiveness of tenge-denominated assets and the national currency exchange rate, all else being equal.
Corporate lending may slow down
Higher inflation and base rates may negatively impact the dynamics of new corporate loan issuance and complicate the achievement of the set goal of an annual increase in new loans to entrepreneurs at a level of "at least 20%" in 2025.
It should be noted that the driver of corporate loan growth this year is large businesses (+24%) against the backdrop of a gradual decrease in the cost of their borrowed resources (-100 basis points since the beginning of the year) and the realization of previously deferred demand. At the same time, large businesses have stable expectations for further improvement in pricing conditions, which contradicts the latest changes in the monetary policy of the National Bank of Kazakhstan. Additional regulatory incentives may be required.
In retail lending, the relatively small overall debt (4.4% of GDP for mortgages, 9.8% of GDP for consumer loans), high competition, widespread popularity of installment plans, and significant wage growth (+11.3% year-to-date) will balance such factors as rising costs of goods and services, slowing influx of new clients (the ratio of borrowers to the employed population is 88%), and tightening regulation.