Economic Analysis - Strong H117 Warrants Upgrade - 21 AUG 2017

BMI View: With Kazakhstan's economic recovery progressing at a faster pace than expected, we have revised up the country's short-term growth outlook. We also note significant upside for the economy over the long term, conditional on structural reforms.

Kazakhstan's economic recovery gathered pace in the first half of this year, with real GDP growth accelerating from 1.0% y-o-y in 2016 to 4.2% in H117, and we have revised up our already above consensus growth forecast from 3.6% to 4.3% for 2017. While rising oil prices and production have been the driving force behind the recovery in H117, an expansion of non-oil industries is also underway. Manufacturing production expanded by 6.9% y-o-y from January to June, while retail sales growth and output in the agricultural sector rose by 5.9% and 3.1%, respectively. Overall, the strong performance of the economy underscores our view that Kazakhstan's economic recovery will be increasingly broad based ( see 'Economic recovery To Pick Up Pace As Non-Oil Sector Expands', July 13).

In comparison to the substantial revision for 2017 our forecast for the next two years has changed less significantly, and we remain above consensus. We now forecast real GDP growth of 3.3% and 3.6% in 2018 and 2019, respectively, compared to the 3.2% to 3.3% previously. Much of the growth boost in 2017 was the result of rising oil prices and ramped up production at the Kashagan oil field (s ee 'Kashagan Output To Ramp Up Gradually', September 2016), factors which will have a more moderate impact over the next two years. We nonetheless see significant upside for the longer term growth trajectory, as the government's privatisation programme and the country's integration in the Belt & Road infrastructure initiative could significantly boost foreign direct investment and thus support a diversification of the economy ( see 'Privatisation And Belt And Road Present Upside Risks For Long-Term Growth', August 4).

Recovery Picking Up Speed
Kazakhstan - Real GDP, % chg y-t-d
Source: State Statistics Committee, BMI

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