Economic growth strengthened in the first month of the new year

Assan KurmanbekovFebruary 15, 2017

The short-term economic indicator in the first month of 2017 demonstrated a growth by 3pp at once, to 3.8% yoy, low base of the previous year (-1.5% yoy in January 2016) primarily contributed to this, along with the restoring economic performance in the second half of 2016. 

The short-term economic indicator (>60% of GDP) in the first month of 2017 demonstrated a growth by 3pp at once, to 3.8% yoy, low base of the previous year (-1.5% yoy in January 2016) primarily contributed to this, along with the restoring economic performance in the second half of 2016. The average Brent oil price in January this year was $55 per barrel against only $31 per barrel a year earlier.

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Oil production in January fell by 8.2% compared with December, while for 12 months (+4%), perhaps as a result of assumed obligation by Kazakhstan of non OPEC countries to limit crude oil production. It is worth noting that according to the U.S. Energy Agency, OPEC in January at 90% complied with the obligation to reduce oil production. While Saudi Arabia reduced output by 116%, Venezuela less than by 20%.

Manufacturing sector increased by 6.1% yoy (-19.8% mom), where high growth is noticeable in steel production +6.5% yoy, non-ferrous metallurgy +8% yoy, in refining +29.4% yoy, pharma 

+23.3% yoy, in listed industries the growth was good last year, thereby there are further strengthening going on in these sectors.

In construction industry, the pace of growth has slowed slightly to 7.1% yoy, from 7.9% yoy in December, however, it is significantly higher than 6% on average in 2016. A strong investment growth at 27.4% yoy contributed to the expansion in construction. As it is known, Kazakhstan currently implements big projects in oil production, government spending in the construction industry also remains at a high level, which supports the growth of the industry.

Goods turnover by transport grew by 4.8% yoy. The overall index grew by 3.5% yoy.

In telecommunications, a decrease slightly worsened to 2.1% yoy from 2% a month earlier. Retail sales rose by 3.5% yoy (-40% mom), due to the strong fall by 7.4% a year earlier, January figures look weak. Wholesale trade in January at 0.8% (-56.8% mom) lower than in 2016.

Inflation slowed in January to 7.9% yoy from 8.5% yoy in the previous month, and can be seen as returning to a more moderate pace of growth, while average annual inflation level in 2016 amounted to 14.7%. 

Wages rose by 13.6% nominally, fell by 0.9% in real terms in 2016. 

Real household incomes dropped by 4.5% in 2016 and 2.5% yoy in December 2016, on the one hand this is associated with the declining inflation, on the other hand, it reflects still weak state of the economy.

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Our view

The economic downturn in the first half of 2016 formed a base for accelerating growth at the beginning of 2017, surrounded by favorable oil prices and investment inflows. It is worth noting, that in no small measure the effect of the low base last year contributed to the improvement of economic indicators, when in January the price of oil was close to $25 per barrel. Wages also look weak, as inflation adjusted figures are still in red. At the same time, the share of wages in GDP for 9 months of last year fell almost 1pp yoy to 31%, and, we believe, that without qualitative growth of the economy it is virtually impossible to achieve the growth of well-being of the population, especially given low prospects for the commodity prices.