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Kazakhstan’s Economic Forecasts Sour for the Next Three Years

Experts expect tenge to weaken and inflation to rise

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The PwC Kazakhstan auditing and consulting company has published a macroeconomic report for the third quarter. It contains projections from notable economists, scientists and bankers on the economic development of Kazakhstan in the next two to three years.

Recovery time

The respondents were asked to select one of the four scenarios for the development of Kazakhstan’s economy: U-, V-, L- and W-shaped. More than half of the respondents – 59% – expect that in 2021-2022, the country will face a continued period of low economic activity followed by recovery (U-variant). This is due to the fact that businesses, particularly SMEs, will take time to restore their previous performance or find new opportunities.

Almost a quarter – 24% – of the total number of the experts believe that Kazakhstan will enter a depression and will not recover to pre-crisis levels (the L-variant).

Oil prices

In the long run – over the next five years – economists are predicting a possible rise in the Brent crude oil price to a maximum of $70 per barrel. Over the next year, according to a staggering 94% of respondents, the price of black gold will not exceed $50.

Sabit Khakimzhanov, PhD in Applied Economics, noted in the PwC Kazakhstan survey that “the oil market is long-term efficient, with an equilibrium price of $40-60 per barrel, with strong volatility and mild mean reversion.”

Exchange rates

Devaluation expectations remain at a high level. 41% of respondents believe that within a year the US dollar will become as expensive as 440 tenge. It is noteworthy that in the past three months the number of experts who are pessimistic on this issue has increased. As of the second quarter, this opinion was held by 39% of respondents.

Within the next three years, economists consider it possible that the national currency of Kazakhstan weakens in the range of 450 to 480 tenge per dollar. In a five-year perspective, devaluation is expected at 480-545 KZT to 1 USD ratio.

"Growth of the money stock, accelerated inflation, dependency of the economy on imports – all these factors negatively affect the tenge exchange rate dynamic. At the moment, the National Bank is curbing the strengthening of the dollar through a range of measures such as restricting working hours of the exchange offices and the stock exchange, tightening currency legislation, pseudo-free exchange rate formation, ‘burning’ of the National Fund’s finances, and introducing a special trading regime. Time will tell how long these measures will have an effect. However, one should remember that the harder a spring is wound, the harder it unwinds,” economist Dinmukhamed Shaikakov commented for PwC.

Inflation and the base rate of the National Bank

The consumer price index will increase significantly in the coming year, according to the majority of survey participants. The maximum inflation threshold named by the experts is 9% (the seven-month inflation rate in the republic was 7%).

“The financial position of Kazakhstan will deteriorate. In the first half of this year, the transfer from the National Fund amounted to 3.5 billion [tenge], and it was huge even before the government announced the aid package. Low oil revenues, declining economic activity and these transfers are likely to lead to devaluation in the next three years. It will cause inflation to rise,” said ISE economics professor Kairat Mynbaev.

Long-term forecasts from the experts are more optimistic: 85% of respondents assume that in the next three to five years, inflation in Kazakhstan will slow down and then decrease by 1.3%.

As for the base rate of the National Bank of the Republic of Kazakhstan, in a one-year perspective, experts predict it to decrease by 0.3-0.5 percentage points, from 9% to 8.5%. In 2021-2023 this rate, used as a tool of economic regulation by the central bank, can be set at 8%.

Previously, Kursiv.kz reported on changes in the macroeconomic indicators in Kazakhstan over the past five months. In that period, the GDP of the country fell by 3%.

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