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EDB talks possible negative coronavirus, lower oil prices consequences on Kazakhstan's economy

6 April 2020

The slowdown of business activity is forecast in Kazakhstan in 2020, Trend reports with reference to the macroeconomic review of Eurasian Development Bank (EDB) for March 2020.

The EDB's forecast said that the drop in world oil and metal prices, as well as the negative consequences of the coronavirus spread, will lead to the weakening of external demand for Kazakhstan's export.

"The state of emergency introduced in the middle of March 2020 will limit the performance of the real and the service sectors. Tighter monetary policy will also have a restricting effect on economic growth. The economy will be supported by stimulating fiscal policy," the forecast said.

The bank noted that government's expenditures on social initiatives planned for 2020 will contribute to the well-being of the population, the extension of the Nurly Zhol state program until 2025 will support the construction industry, and the implementation of the state program of industrial and innovative development will increase the potential of processing industries.

"In addition, in order to support small and medium business, and individual entrepreneurs affected by the state of emergency in the country, a soft loan program worth 600 billion tenge ($1.3 billion) was developed. Kazakh manufacturers of non-energy products may gain additional competitive advantages from weakening of tenge," EDB said.

In the short term, the risks of more restrained dynamics of economic activity prevail, the EDB said.

"This is primarily due to the fact that the consequences of the coronavirus spread for the global economy are currently difficult to predict due to uncertainty on the extent of the epidemic and its duration. We expect that the negative effects will mostly be suffered by the demand and will not have a significant impact on production potential. Otherwise, the consequences for Kazakhstan's economy may be more extended and stronger. In addition, there is a possibility of long-term preservation of low oil prices and a stronger impact of this factor on the expectations of economic agents and investment demand," the report said.

The Eurasian Development Bank said that economic activity will recover in 2021 and 2022 as the situation in the global economy and commodity markets stabilizes, and the implementation of state development programs is resumed.

"Strengthening of external demand amid a recovery of the global economic growth will help improve export, primarily of non-energy products. In the medium term, the risks to Kazakhstan's GDP come from both the external sector and the domestic economy. There is still the possibility of a stronger slowdown in the global economy, which is likely to lead to a weakening of Kazakhstan's export and investment activity. The stimulating effect of domestic fiscal policy measures may be limited, including due to restrained economic sentiment," the report said.

On March 15, 2020, Kazakhstan's President Kassym Jomart Tokayev signed a decree introducing an emergency state in Kazakhstan due to the coronavirus outbreak, which came in force from 08:00 (GMT +6) on March 16 and will last till 08:00 on April 15, 2020.

The latest data said that the total number of coronavirus cases in Kazakhstan is 629 people.

On the morning of March 9, 2020, Brent crude plunged 25 percent dropping to its lowest since February 2016 and recording the biggest one-day percentage declines since Jan. 17, 1991.

Trading volumes in the front-month hit record highs in the previous session after a three-year pact between Saudi Arabia and Russia and other major oil producers to limit supply fell apart on March 6, 2020.