Economic Flash Review

Flash data on the short-term economic indicator have been released. It came in at 97.5% in January, which means that in January 2026 we will most likely see zero growth or even a recession. This is the result of several factors that have significantly affected our economic growth, or rather, its decline.

First, Tengiz was idle in January because of the situation with the CPC, which cut oil production in Kazakhstan by roughly 2.5 million tonnes a month. This is a substantial volume, and it produced the largest drop in GDP. Calculating the impact on GDP is not difficult in principle, once it is known that the fall in oil output was about 2.5 million tonnes. On top of that, the oil price fell by roughly USD 12–13 per barrel in January 2026 compared with January 2025. So if you add up the price effect and the volume effect, you get a drop in GDP of about 7% in monthly terms. The decline in oil production was partly offset by a sharp rise in the prices of gold, uranium, copper and silver, which also make a fairly large contribution to GDP.

Second, we are seeing a significant strengthening of the tenge at the end of last year and the start of this one, which also affects economic growth. All export revenues in tenge shrink in proportion to the exchange rate, while tenge-denominated costs do not fall and incorporate price growth. This reduces exporters' profitability and, accordingly, their contribution to GDP. A strong tenge also puts pressure on the domestic market through cheap imports and competition for local producers. However, it has helped considerably to keep inflation within an acceptable range, at 1% in January, which will have a positive effect on inflation overall. But the tenge exchange rate has another problem: significant volatility. Over six months the rate has shot up to 550 and strengthened to 488 tenge. A 62-tenge swing amounts to 12% volatility, which is a lot and prevents entrepreneurs from planning properly. The budget assumes an exchange rate of 540, which means that at a rate of 500 the budget will miss roughly 8% of revenues tied to foreign-currency earnings, and that is before counting the effect on profits. We will see the impact of the exchange rate on the budget in the second quarter, when payments for the first quarter are made.

The main reason for the current volatility is the lack of market depth, caused by the many restrictions on foreign exchange transactions in the country. For example, legal entities cannot freely buy foreign currency without a contract. As a result, when sellers are in the market, companies cannot buy currency to hedge their future plans. Sellers of currency face a short-term absence of demand, and the exchange rate strengthens sharply, which is what we see now. But when importers and companies come to the market to buy currency to carry out their investment plans, there will be no sellers, and the rate starts to weaken abruptly. That is what we saw last summer, when the National Bank was able to halt the fall of the tenge only through interventions. This makes it impossible for entrepreneurs to plan properly and hedge their risks; the rate is highly volatile, and importers build the maximum values into their prices. Unfortunately, there are no plans to remove the barriers that regulators have created in the currency market, which prevents the emergence of a normal foreign exchange market. It should also be added that this year transfers from the National Fund, which have substantially supported the tenge, will be considerably smaller.

The current economic situation was also affected by deferred demand from December. Ahead of the introduction of the new Tax Code, many people brought purchases forward to save money, which was particularly visible in real estate, cars and household appliances. I can say with certainty that in the first quarter there will be a significant decline in sales of real estate and cars. More generally, the residential construction sector, which for many years was one of the sources of economic growth, will also be under heavy pressure this year and next.

Overall, matching last year's economic growth will be an extremely ambitious task, because last year growth received a large boost from higher oil production, an abnormal rise in metal prices and increased consumer demand ahead of the new Tax Code.

This year, because of the high base rate, we will also not see strong credit growth, and current lending is essentially driven by government programmes. The strong tenge, combined with high expectations of its weakening, also weighs heavily on local producers. To this we should add the moderate fall in oil prices and the high base of last year. The entry into force of the new Tax Code will also weigh on growth plans, since an adaptation period is traditionally needed, along with time to redistribute the additionally collected taxes through the budget mechanism.

Traditionally, to support short-term economic growth the state uses accelerated government spending, both directly and through the quasi-public sector. Whether this will be possible this year, time will tell. Nevertheless, the most important issue must remain attracting investment.

Investment, particularly private investment, is not in good shape, and painstaking, very deep work is needed here. The current emphasis is on attracting investors directly through one-on-one negotiations. But with this approach foreign investors usually extract fairly generous terms for themselves, which allow them to minimise risks and increase earnings. I think that systematic work to improve the investment climate and remove barriers is not being pursued as actively.

Banks deserve separate discussion. In 2006, Kazakhstani banks raised about USD 17 billion of investment through various instruments, and in 2007 more than USD 10 billion. However, after the financial crisis of 2009, foreign investment through second-tier banks stopped being attracted. The current regulatory system has de facto shut off this channel for bringing investment into the country, even though banks are a fairly attractive system for attracting and redistributing investment. But we need to get rid of the prohibitions, restrictions and barriers that were born out of the 2009–2015 crisis. As the saying goes, once burned by milk, you blow on water.