From 2000-2007, the Kazakhstan economy enjoyed an extended period of very rapid growth, with real GDP growth averaging 10 percent annually. The expansion was underpinned by the development of the oil sector, prudent macroeconomic policies, structural reforms, and increased access to global financial markets. As a result, real per capita incomes have doubled since 2000 and social indicators have improved.

More recently, the global financial turmoil that began last summer had a significant impact on the Kazakhstan economy. Market perceptions of risk on Kazakhstan’s assets rose sharply last September and remain relatively elevated. As commercial bank access to external funding was reduced, domestic liquidity conditions tightened considerably, and banks sharply curtailed lending. Real GDP growth has slowed and, after several years of rapid gains, property prices are declining.

Economic growth is expected to remain relatively subdued. Real GDP is forecast by the IMF to grow by 5 percent and 6.25 percent in 2008 and 2009 respectively. The current account is projected to move into surplus in 2008 following the large deficit last year, due to higher oil and commodity prices and much slower import growth.

Consumer price inflation (CPI) has begun continued to accelerate, although it is expected to decline to single digit rates by year-end. While risks to the outlook are on the downside, the country has large financial resources to help weather the current situation.

However there is little sign of real second round effects, and despite what appears to be a fairly tight labour market, both nominal and real wage increase are now well down from their peak in the second half of 2007. Real wages were up an annual 1.3% in July, after falling in April, May and June.

In response to the tightening of liquidity conditions, banks have sharply curtailed their lending, and growth and property prices are weakening. There has been no growth in bank lending since August, and this “credit crunch” is affecting the nonoil economy. Real GDP growth slowed to 6 percent (y/y) in the first quarter of 2008, from 8.9 percent (y/y) in the third quarter of 2007, and recent indicators of manufacturing and construction activity suggest that the nonoil economy remained weak into the second quarter. After several years of rapid gains, property prices are declining, most notably in Almaty where the prices of existing homes are down by 40 percent from their peak. This decline has partly corrected previous overvaluation, although the price adjustment may have further to go, particularly if credit availability and household incomes continue to weaken. Developments in Kazakhstan have also had repercussions in the region.

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