(EnergyAsia, June 22 2015, Monday) — After nearly 15 years of rapid growth, Kazakhstan’s high-flying economy will slow to a new low of just 1.7% this year under the combined weight of Russia’s problems and low oil and gas prices, predicts the World Bank.
Starting from a low base at the turn of the century, the Kazakhstan economy grew at an average annual rate of 8.3% between 2000 and 2010. It began slowing down since the start of this decade, and hit a low of 4.3% last year as oil prices collapsed from last June.
“This reflects the combination of falling oil prices, recession in Russia, declining confidence, and lower capital inflows,” said the bank’s assessment of the country as part of its mid-year update on the world’s economic prospects. Kazakhstan relies on crude oil for about 70% of its export revenues, and sales of various commodities to Russia for around seven percent of earnings.
2000–10a 2011 2012 2013 2014e 2015f 2016f 2017f
8.3 7.5 5.0 6.0 4.3 1.7 2.9 4.1
The government’s 19% devaluation of the local currency against the US dollar in February 2014 helped avert a recession last year, but its effects have largely petered out this year. Central Asia’s largest economy will also suffer the consequences of continuing production delays in the giant Kashagan oil field, said the bank.
With commodity prices expected to stay low, Kazakhstan’s current account surplus will shrink further despite the offset provided by weak domestic demand and slower import growth.
“Fiscal balances have deteriorated significantly. A 3% deficit is projected in 2015, largely reflecting lower revenues from oil exports,” said the bank.
Kazakhstan’s economic growth might revive slightly next year to about 2.9%, and 4.1% in 2017.
“Almost all economies in the region, have been negatively affected by the spillovers from the recession in Russia and Ukraine, weakening confidence related to the on-going geopolitical tensions, and growth slowdown in oil-exporting Azerbaijan and Kazakhstan, to various degrees,” said the bank.
Only Uzbekistan and Turkmenistan, two relatively closed, resource-rich economies with strong buffers and linkages with the East and South East Asia regions, were less affected by the commodity price declines and regional headwinds.
Central Asia’s oil-importing eastern countries face tough prospects despite the benefit of lower oil and gas prices as they are hit by lower trade and investment inflows, and income remittances.
Weaker exports and exchange rate pressures have proved detrimental for the economies of Armenia, Belarus, Georgia, the Kyrgyzstan, Moldova and Tajikistan.
With most imports invoiced in US dollars, and foreign exchange receipts in rubles, the slide of the ruble and local currencies against the greenback have triggered a deterioration in the region’s terms of trade and a rise in inflation.
Russia’s economy is expected to contract by 2.7% this year and to reverse to grow by 2.5% next year, hardly sufficient to boost Central Asia’s outlook.
The World Bank said Russia’s economy will continue to underperform, growing by about half its average rate in the 2000–10 decade. And this is the best case scenario, as it is based on the assumption of a modest recovery in oil prices and no major deterioration in geopolitical tensions.