Kazakhstan's Economy Faces Recession as Key Sectors Struggle

Kazakhstan's economy is heading towards a recession, with a prominent financier pointing to a perfect storm of negative factors. The primary blow comes from the energy sector, where the shutdown of the Tengiz field due to issues with the Caspian Pipeline Consortium (CPC) has led to a monthly drop in oil production of approximately 2.5 million tons. Compounding this is a decline in oil prices by $12-13 per barrel compared to January 2025. Combined, these factors are estimated to contribute to about a 7% monthly decline in GDP.

While the fall in oil output was partially offset by significant price increases for gold, uranium, copper, and silver—commodities that also contribute substantially to GDP—other pressures are mounting.

A second major negative influence is the significant strengthening of the Kazakh tenge. This reduces exporters' revenue in tenge terms while their costs remain unchanged, thereby diminishing their contribution to economic growth. The strong national currency also puts pressure on domestic manufacturers facing cheap imports, although this same effect helped keep inflation at 1% in January.

The financier highlighted serious volatility in the exchange rate—up to 12% over six months—as a persistent problem. This volatility is caused by a lack of market depth and restrictions on foreign currency operations for legal entities. With the budget planned at an exchange rate of 540 tenge per dollar, a rate of 500 tenge could lead to an approximately 8% loss in budget revenue from foreign currency earnings. Furthermore, reduced transfers from the National Fund will weaken support for the currency.

"This makes it impossible for entrepreneurs to plan normally and hedge their risks," he noted. "The exchange rate is highly volatile, and importers build maximum values into their prices. Unfortunately, there are no plans to remove the current regulatory barriers in the foreign exchange market, which prevents the creation of a normal market."

The expert also pointed to delayed demand from December ahead of the introduction of a new Tax Code as an additional economic drag. He forecasts a significant drop in real estate and car sales in the first quarter, with the construction sector also coming under pressure.

"Overall, ensuring economic growth at last year's level will be an extremely ambitious task," he stated. "Last year saw major contributions from increased oil production, anomalous growth in metal prices, and heightened consumer demand ahead of the new Tax Code's introduction."

Traditionally, short-term growth support comes from accelerated government spending. However, according to this financial expert, attracting investment should be key. He criticized that current efforts rely heavily on direct negotiations with investors often leading to preferential terms for them while systemic work on improving investment climate and removing barriers remains insufficiently active.