Why GDP Is Growing by 6.5% While Real Incomes Are Falling

Let's talk about GDP today. Kazakhstan achieved fairly good results last year, and growth of 6.5% is a very good figure. But, as always, the devil is in the details. The goal of any state is not simply GDP growth but, above all, rising living standards, and here we have certain difficulties: according to the World Bank, real household incomes fell by about 2.7% last year, with a 6% decline in December.

GDP growth itself reflects how much value added the country created over the year. The more important question, however, is how that value added is distributed between profits and the wage bill (household incomes).

To understand how GDP can grow while incomes fall, we need to know how GDP is calculated, how it is formed, and what must be done so that household incomes grow along with GDP.

GDP can be calculated in three ways. The simplest is the production approach. It works much like VAT: you take the country's total output and subtract intermediate consumption, in other words, all the materials and services used in production. What remains is value added. This method is good for understanding the sectoral structure of the economy.

The income approach reflects the essence of GDP most accurately. It is the sum of all corporate profits and labor compensation, plus taxes on consumption. Growth in profits and in the wage bill underpins any GDP figure. This method shows how the value added created is distributed among businesses, households and the state.

There is also the expenditure approach, calculated as the sum of household spending, government spending, investment and net exports (exports minus imports).

The expenditure approach makes it possible to respond quickly to the economic situation in order to sustain GDP growth. For example, if household spending falls, the government can increase its own spending and smooth out GDP growth. Alternatively, through monetary or fiscal policy, it can boost exports and/or reduce imports, or expand lending to stimulate consumption.

If real household incomes fell by 2.7%, this means nominal growth was about 9.6% (with inflation of around 12–13%).

The more developed a country is, the higher the share of labor compensation in GDP. In developed countries the wage bill typically accounts for around 60%, whereas in Kazakhstan it is roughly 30%.

This means, say, that 30% of GDP (the wage bill) grew by 9.6% in nominal terms. The GDP deflator last year was 9.7%, so nominal GDP growth was 16.8% ((1+0.065)*(1+0.097)-1).

Profits and taxes together then delivered nominal growth of about 19.9%: 16.8% = 9.6% × 30% + X × 70% X = (16.8% − 2.88%) / 0.7 ≈ 19.9%

This means real profit growth was about 9.3%: (1.199 / 1.097 − 1) ≈ 9.3%

In other words, corporate profits grew by about 9.3%, while household incomes fell by 2.7%.

This makes for very unstable growth, one that relies on the contribution of corporate profits while domestic demand in the country contracts. Accordingly, this year even more government stimulus (that is, spending) will be needed to support the necessary rate of economic growth.

The World Bank, for example, points to excessive profits in the banking sector, well above global levels. This is primarily due to the widening of the net interest margin. I have written about this before: because interest on current accounts is prohibited, banks substantially reduce the cost of their liabilities, since these funds come to them virtually free of charge. This leads to an abnormal rise in the net interest margin and, as a consequence, to excess profitability in the sector.

The World Bank also notes rising margins among SMEs. Meanwhile, consumption is growing on the back of a significant expansion of consumer lending: over five years, consumer loans grew by 100%, while real household incomes grew by only 15%.

To increase the share of the wage bill in GDP, it is important to raise labor productivity rather than redistribute corporate income through fiscal mechanisms, since the latter may only fuel inflation rather than produce a real increase in household incomes.

Labor productivity grows faster in tradable sectors, whereas non-tradable sectors generally grow through price increases, which redistributes income in their favor.

Now let's look at which sectors drove economic growth in 2025.

The sectors that exceeded average GDP growth were as follows. Mining, primarily owing to the expansion of Tengiz and a significant increase in oil production. Construction, driven mainly by government orders (comfortable schools, social housing, infrastructure and so on). Logistics and warehousing, as a result of improved transport infrastructure and the growing use of Kazakhstan as a transit country. Wholesale and retail trade, as a result of a rising share of imports, growth in consumer lending and the development of trade infrastructure, above all e-commerce. And manufacturing, which grew by about 6.4% last year, close to overall GDP growth.

This structure of GDP growth has its drawbacks. The mining sector cannot keep growing without major new deposits, and that requires huge investment which should have been made 3–5 years ago.

Construction is supported mainly by government orders, and in this segment hopes now rest on the megaprojects planned in the country, such as nuclear power plants, large petrochemical complexes, new combined heat and power plants and gas processing plants, the large Alatau City project and the renewal of utility infrastructure. The main risk for these projects is finding financing, but each of them is critically important for building the country's infrastructure framework and for its future development. For now, the state appears to have a major role in attracting investment through external borrowing, fortunately, since we have a fairly good credit rating and a solid safety cushion.

At the same time, the banking sector is used extremely inefficiently to attract private capital because of regulatory restrictions. For example, until 2007 the banking sector was the main channel for attracting external financing, whereas now we see capital outflows through portfolio investment.

Further growth in logistics and transport will depend on the pace at which infrastructure projects and logistics hubs are commissioned, but with each year it will be harder to sustain such growth, despite the currently favorable conditions.

Wholesale and retail trade, in my view, will stagnate or grow at close to zero this year, since consumption will decline against the backdrop of falling real household incomes and tighter requirements for consumer lending. This may help bring inflation down, but with a strong tenge and cheap imports the opposite effect is also possible. Rising imports are also a barrier to growth in manufacturing.

Manufacturing, meanwhile, will face difficulties with lending given the high base rate and a fairly strong tenge, which will weigh on the competitiveness of domestic producers. Supportive measures and greater investment are needed here. Attracting investment into manufacturing should become a key priority, and a balanced approach is important, ranging from direct investment to bank financing and the stock market. In addition, significant tenge volatility, combined with a lack of market depth caused by numerous regulatory restrictions, creates further difficulties for manufacturing.

To sum up, this year will be a year of challenges: we need to raise real household incomes and ensure GDP growth at the same time, and both may stand in the way of lower inflation.

The sequence should be as follows: first, lower inflation; then, sustainable GDP growth, which will deliver growth in real household incomes.

However, inflation has been high for four years now, and no significant progress in bringing it down has yet been made. The base rate alone is not enough: in the presence of systemic imbalances, it is extremely difficult to defeat inflation.