According to preliminary data of the Committee on Statistics, an economic growth for 9 months of 2017 amounted to 4.3% yoy against 4.2% yoy in the first half of this year. Therefore, according to our calculations, GDP in the third quarter slowed to 4.3% yoy, while a maximum since 2015 was reached in 2Q at 4.8% yoy. Short-term economic indicator (> 60% of GDP) in January-October 2017 slowed to 5.4%, which is 0.4pp less than in the period from January to September. The main reason was an industrial production, which decelerated to 7.5% yoy in January-October 2017 (+8.3% yoy in January-September).
GDP for 9M2017
According to preliminary data of the Committee on Statistics, an economic growth for 9 months of 2017 amounted to 4.3% yoy against 4.2% yoy in the first half of this year. Therefore, according to our calculations, GDP in the third quarter slowed to 4.3% yoy, while a maximum since 2015 was reached in 2Q at 4.8% yoy. Taking into account the seasonal adjustment, based on our estimates, in quarterly terms a growth fell to 1.2% qoq in Q3 of the current year after a peak of 2% qoq in the previous quarter. The main driver of an economic growth remains the industrial sector (in the first 9 months of this year it provided 52% of growth) in conditions of more favorable prices for raw materials and growth in oil production. At the same time, a fairly strong recovery in trade and a rise in the transport sector provided, in aggregate, almost a quarter of the economy's growth.
Short-term economic indicator (> 60% of GDP) in January-October 2017 slowed to 5.4%, which is 0.4pp less than in the period from January to September.
The main reason was an industrial production, which decelerated to 7.5% yoy in January-October 2017 (+8.3% yoy in January-September). The effect last year’s low base diminished: in October the industry produced only 0.6% more than in October last year. For comparison, since March of this year, almost every month the growth was at a level above 7% yoy.
The mining sector is accounted for more than 70% of the contribution to the industry index increase: in this sector growth was 10.2% yoy in January-October, +0.5% mom in October (against 11.3% yoy in January-September, -10.3% mom in September).
When considering an index of the mining sector with a seasonal adjustment in monthly terms - production volumes are declining from the second half of this year and in October fell by another 10% mom. This decrease is caused by the decline in crude oil output (including gas condensate), natural gas, metals. In October, the indicators with seasonal adjustment deteriorated: metal production (-2% mom), natural gas (-5.8% mom), crude oil production, including gas condensate (-8.1% mom).
In general, over the period of 10 months of this year, a production growth in all sectors of the mining industry has slowed on average by 1pp compared to the period in January-September: crude oil, +11.4% yoy (against 12.5% yoy in January- September), metals, +8.8% yoy (vs. 9.7% yoy), coal production, +7.8% yoy (vs. 10.8% yoy).
In the manufacturing industry, an output in January-October increased by 5.2% yoy, +2.8% mom (against 5.7% yoy in January-September, +4.9% in September). The output of refined products increased by 5.5% yoy, +7.1% mom (against 5.7% yoy in January-September). In the metallurgical industry – a sluggish growth is observed, +0.5% mom: the production of ferrous metallurgy fell (-5.6% mom), this decrease was partly compensated by a rise in the production of non-ferrous metals (+3.5% mom). Therefore the manufacturing for January-October rose by 6.4% yoy, against +7% yoy for the month before.
Gross output of agriculture increased by 2.1% yoy in 10 months of 2017 (against 1.9% yoy in January-September). The output of crop production was accelerated (the total share in the industry was almost 60%) to 1.2% yoy (+0.8% yoy a month earlier). In the same period last year, the growth was 4.3% yoy, which is twice the current rate, apparently, in view of the lower harvest this year. The harvest of cereal in 2017 was 22 million tons, which is 1.5 million tons less than last year.
The sharp increase in construction work in the previous period has turned to a slowdown almost twofold in the current period to 1.8% yoy (against 3.5% yoy in January-September). Construction work in the capital city continues to decline, -8.1% yoy, a decrease also is in the Almaty region (-5.9% yoy). With the completion of modernization of the Pavlodar refinery, the construction volumes in the region also slowed down to 9.8% yoy (against 22.9% in January-September).
Investments in fixed assets increased by 6.5% yoy (against 4.4% yoy in January-September). Investments in agriculture increased by 4.9% yoy (against 0.6% yoy in January-September), investments in trade increased by 16.3% yoy (against 9.8% in January-September), real estate operations, +16.4% yoy (against 2.5% yoy in January-September), manufacturing, +10.4% yoy (against 3.5% yoy in Jan-Sep). At the same time, in the conditions of suppressed lending, the enterprises' own funds remain the main source of funding.
Trade grew by 3.2% yoy in January-September (against 3% in January-September): retail trade increased by 6.3% yoy, wholesale trade, by 1.7% yoy. In the same period last year, the industry stagnated, -3% yoy, then the decline ended at the end of last year. As a result, we expect that the trade by the end of 2017 will decelerate.
The communications industry continued to grow at the level of 3.2% (against 3% yoy in January-September). The main driver of growth remains the double-digit rate of increase in Internet services (+13% yoy), other segments show a sluggish growth (mobile communication, + 0.5% yoy) or decrease (local telephone line, -6.5% yoy).
Transport kept its growth at the level of the previous period at 4.7% yoy. Freight turnover for the 10 months of this year increased by 8% from the level of the previous year: due to the increase in railway transport, by 11% yoy.
It should be noted that the growth rate of capital investments accelerated in October (+ 6.5% yoy), exceeding the rate of growth in the real sector (STEI: + 5.4% yoy), which indicates a revival of business and investment activity due to a more favorable price environment in commodity markets. However, in our opinion, so far investments remain of low quality. Capital expenditures are growing at the fastest rates in the sectors represented by large national companies - crude oil and natural gas production, + 26.3% yoy, production of petroleum products, + 67.2% yoy. While the increase in investments in construction (+ 6.1% yoy), trade (+ 16.3% yoy), agriculture (+ 4.9% yoy) is more modest, in manufacturing – there is a decline in investments in metallurgy by 46% yoy. In addition, the main growth is demonstrated by capital expenditures for the purchase of machinery and equipment (32% of the total investment for the period), + 14.2% yoy in January-October 2017, which may be due to the growth of investment imports.
A diminishing effect of the low base of last year and a general deceleration in production from the second half of this year slows down the indices of industrial growth, which provided 3.8% growth (70% of the STEI). The sector of transport, which is also dominated by large national companies, steadily provides more than half the percentage of growth to STEI. Prospects for the acceleration of industrial indicators are vague, as the increase in production due to Kashagan operating at full capacity by the end of the year, according to the Energy Minister, is postponed until 2018. In these conditions, because of the last year’s low base reduction (since September last year – Kashagan oil field was launched), the industrial sector will continue to decelerate slightly.
According to our estimates, GDP growth by the end of this year may reach 3.3% (our previous forecast of 2.9%). Based on the fact that the average growth of the economy for the three quarters of this year is 4%, it is likely that the economy will be able to maintain its growth rate in the fourth quarter, supported by high oil prices (above $60 per barrel from late October). It is worth noting that more than half of the growth in the economy is provided by industry and, in particular, under the influence of increased oil production. This fact makes the current economic recovery unsustainable, especially as there is a decrease in the number of employed people, not to mention even the continued fall in wages. Thus, the current economic recovery is more technical in nature than due to qualitative changes in the economy.