The Agency has published the Growth at Risk report for Q2 2023
The Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (hereinafter - the Agency) has prepared the 6th issue of the quarterly report "Growth at Risk" (hereinafter - the Report) for Q2 2023. The Report contains a qualitative assessment of the state of external and internal macrofinancial conditions of the country's economy development and their impact on the distribution of conditional GDP growth of Kazakhstan in the short and medium term. The calculations were performed using the probabilistic Growth at Risk[1] (hereinafter - GaR) model.
In Q2 2023, immediate concerns about the banking sector diminished and volatility in global markets decreased. According to updated IMF calculations (Global FCI[2]), global macro-financial conditions improved in Q2 2023 on the back of growth in the technology sector and higher equity prices. At the same time, tight monetary policy continues to put pressure on banks' balance sheets. In addition, the ongoing uncertainty exacerbates the global growth constraints, including high inflation, tighter global financial conditions and geopolitical tensions. These factors, taking into account domestic conditions, affect the dynamics of economic growth and inflation in Kazakhstan.
The results of the GaR model show that at the end of Q2 2023, the FCI composite index remains in the positive zone, however, compared to the previous quarter, decreased by 0.5 points, indicating a slowdown in the deterioration of macro-financial conditions. In terms of FCI sub-indices, the indices of debt burden, external and internal financial conditions demonstrated softening. At the same time, the index of external demand didn't change relative to the previous quarter.
According to estimates, a slowdown in the deterioration of macrofinancial conditions in Q2 2023 slightly raises notional GDP growth (+0.1) a year later, while in the medium term the risks of growth slowdown remain. The probability of conditional GDP growth below zero a year from now is 7%, and in the medium term - 14%.
Also, the distribution of the baseline forecast of the Government of Kazakhstan on economic growth for 2023 calculated by GaR model shows that the probability of GDP growth slowdown below 4% in 2023 is estimated at 51% if the current macro-financial conditions remain unchanged, and increases to 71% if conditions deteriorate (increase in the Fed Funds rate, decline in oil prices, weakening of the tenge).
In general, risks to growth are moderately downward-shifted, but remain somewhat elevated compared to historical values. In this environment, the policy priority should remain to reduce inflation while ensuring financial stability, as well as creating fiscal space for mobilizing resources when necessary.
The full text of the Report can be found on the Agency's website:https://www.gov.kz/memleket/entities/ardfm/documents/details/518315?lang=ru
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