The short-term economic indicator with a slight acceleration was at 5.2% yoy (>60% of GDP), so the contribution of the six main sectors of economy to GDP was more than 3pp out of 4% in 2017 (according to preliminary data).
The industrial sector, as we expected, continued to slow down to 7.1% yoy by the end of the year. However, the growth surpassed our expectations due to the strong performance in oil and gas production in December. Compared to 2016, the index of the oil sector increased by 10.5% over 12 months (according to our expectations - up to 10%).
At the end of the year, growth in the mining sector amounted to 9.3% (share 52%, thus the contribution to the industry was about 4.8pp). The extraction of non-ferrous and ferrous metals (+8.2% and 6.9%, respectively) also largely contributed to the impressive growth in mining.
A growth in the manufacturing sector was at 5.1%, the index reached a peak in 2017 since 2011. The largest contribution was made by metallurgy (due to ferrous, +6.5%, and non-ferrous, +6.3% per year), motor vehicle production increased significantly (+39% yoy), refinery production increased due to expansion of capacities after modernization (+5% yoy).
By results of the year, the three main commodity industries - crude oil production, extraction of metals, and metallurgy contributed, according to our calculations, to almost 40% of GDP growth (1.5pp from 4%).
The transport sector grew significantly by 4.8% (~10% contribution to GDP, 0.4pp) due to an increased industrial production: the highest turnover was observed in the pipeline (7%) and railway (9.3%) transportation. As a result, the commodity industry recovery in 2017 provided almost half of the country's GDP growth (about 2pp).
Construction in 2017 grew by 1.9% (in 2016, the growth was at a record 7.9% mainly due to the construction of facilities for the international exhibition in Astana). The sharp slowdown in construction volumes coincided with the completion of preparations for this event, then the index in the second half of the year was at a level of around 1% and was supported by the works in Western Kazakhstan, which is apparently related to the construction of infrastructure in the area of oil fields.
Trade for 12 months of 2017 grew by 3.2% compared to the previous year, in the same period in 2016 physical volumes of trade decreased by 2%. A significant increase in the index occurred entirely due to the recovery in the retail segment (6.3% per year), while in wholesale the growth was at 1.5%. In the structure of retail trade, the main source was observed in food products, +8.7% yoy, non-food products increased by 4.9% yoy. However, the qualitative growth of trade is possible along with an increase in real incomes of the population, so the development of the industry will stimulate further growth of incomes. The average nominal salary increased by 4%, by our estimations, which in real terms means a decrease of 3.1%. In the current situation of the persistence of negative dynamics in wages and incomes, we can assume that the growth in sales of non-food products in the structure of retail trade (+T680 million nominally for the year) was partially financed by growth in consumer lending (+T430 million in 11 months). While growth in non-food sector is questionable.
At the end of the year, agriculture grew by 2.9% yoy, which is 5.5% lower than last year. This growth was mainly due to the increase in livestock production, while in 2016 a driver for growth was a crop production. The increase in production in the agricultural sector supported a noticeable increase in investment at 30%, but its share in total investments of the country is small, only at 4%.
The index of physical volume of communication services in 2017 was at 3.3%, while a significant share in the total volume of services is taken by Internet and mobile communication services (64%). For 12 months of 2017 the volume of mobile services remained at the level of last year (index 100%), growth in Internet services - 11.8% (contribution 3.9pp), but a significant decrease of telephone services (negative contribution at 0.6pp) formed a total index at 3.3%.
Investments in fixed assets increased by 5.5% yoy (5.1% yoy in 2016), of which more than 55% were directed to industry (including about 40% to the commodity sector), 14% - to the transport sector, 13% - in the operation with real estate. The growth rate of investments in fixed assets is higher than in the last 3 years. The main source of financing was the enterprises’ own funds (69% of the total). Despite the almost double-digit growth in capital investments in construction, trade and communications, their share in the total volume remains small (together 1.6%). The acceleration of investment growth was mainly due to the production of oil and gas (+ 19.4% yoy), real estate operations (+ 18.5% yoy).
According to preliminary data, the GDP growth of the country was 4%, while the Ministry noted that one of the factors that supported the indicator was price - namely, the reduction of inflation to 7.1% by the end of the year. In the structure of the economy, we do not notice significant changes, 3 industries (oil and gas, metals and metallurgy), as well as the related transport sector, are accounted for almost half of the growth.
Thus, the raw material dependence is preserved. The remaining 2pp provided the remaining sectors of economy - trade, agriculture and construction. Trade, while real incomes of the population are still negative, in our view, looks unsustainable, and we expect a decline in its growth during 2018. Construction and agriculture showed a moderate growth with a slowdown compared to 2016, while the main sources of financing were state programs for the development of the agriculture, as well as the increased construction works for the Expo.
A positive trend, we believe, is a continued growth of investment, mainly due to the company's own funds. Over the past 5 years, the average growth of the economy was about 4.5%, which is roughly comparable to the average growth rate of capital investments for the same period - 4.3%. This trend should support the growth of the economy stably. However, for the GDP acceleration, the increase in investments in fixed assets should outgrow the country's gross output.
Further rise of oil production in Kashagan as the project is expanding will allow to maintain a moderate growth in the mining industry, we also see the prospects for the improvement in manufacturing (oil refining and metallurgy), agriculture, electricity supply as lending activity recovers and domestic demand grows.