In 2021, rising commodity prices, significant inflows of budgetary and non-budgetary funds into the real sector of the economy, as well as the acceleration of consumer lending and the withdrawal of savings from the UAPF contributed to the recovery of the growth rate of the Kazakhstani economy to the pre-crisis level of 4% yoy. However, this could not, but spur inflation, which amounted to 8.4% at the end of the year.
In 2022, the main impact on the economy of Kazakhstan will be felt through geopolitical tensions, sanctions pressure against the main trading partner – the Russian Federation, as well as an increase in crisis phenomena in the global economy. We forecast the following macroeconomic parameters: Kazakhstan's GDP growth of 3.3%, inflation of 10-12%, exchange rate of 490 tenge per US dollar.
High oil prices and expansion of oil production along with continued fiscal stimulus will ensure the growth of Kazakhstan's GDP by 3.3% in 2022. High oil prices and an increase in oil production from 85.7 mln tons in 2021 to 88 mln tons in 2022 will support growth of the Kazakh economy. Also in the current year, the increase of state budget expenditures directed to support the economy will continue, including the inflow of the leftover of pension savings that is expected in the 1st quarter. However, the external economic situation is seriously complicated by close economic ties with the Russian economy, which is currently under severe Western sanctions, that indirectly suppress business activity in Kazakhstan and lead to a drop in household incomes driven the devaluation of the national currency and, further accelerating inflation. As a result, we expect Kazakh GDP growth to slow down to 3.3% yoy.
Increased exchange rate volatility under the pressure of external shocks. In 2021, the national currency depreciated by 2.6% yoy to 431.7 tenge per US dollar. The weakening of the USDKZT pair took place against the backdrop of an increase in oil prices (+50.2% at the end of the period to $77.8 per barrel) and a strengthening of the US dollar (+6.4% to 95.67pp). The Russian ruble weakened only 0.6% against the US dollar last year compared to the 2.6% yoy depreciation of the tenge, but the quarterly weakening of the Russian currency was 2.1% qoq to 74.3 rubles per US dollar.
In 2022, the dynamics of the tenge exchange rate will be determined, on the one hand, by high prices for oil and metals exported by Kazakhstan, on the other hand, by the growth of geopolitical tensions and dependence on imports from neighboring countries, where the exchange rates will demonstrate volatility. At the end of 2022, according to our forecasts, the US dollar exchange rate will be at 490 tenge. At the same time, we expect increased exchange rate volatility in the short term, followed by stabilization in the 2nd half of this year.
The pace of inflation will accelerate. After reaching a maximum rate over the past 5 years of 8.9% yoy in September-October last year, consumer inflation slowed down to 8.4% yoy in December 2021. In the environment of high inflation rates in the countries-trading partners (global inflation accelerated almost three times to 5.7% yoy). The above factors will maintain their force in 2022, however, their effect will be intensified by global geopolitical tensions, the exchange of sanctions, and the transmission of inflation through the exchange rate channel. We expect inflation to accelerate to 10.0-12.0% in 2022 on the back of reduced supplies from companies affected by sanctions, as well as increased exchange rate volatility.
Monetary conditions will remain relatively tight in 2022. During 2021, the NBK raised the base rate by 75bp to 9.75%. In January 2022, the NBK hiked the base rate by another 50bp at once to 10.25% and in February raised it further to 13.5% as a monetary response to foreign economic and geopolitical shocks. Lift of interest rates to limit currency speculation and foreign exchange interventions in the face of high exchange rate volatility were quite expected steps. In the medium term, continuation of such monetary conditions by the NBK will have a negative impact on the growth rates of the Kazakhstani economy. Taking into account the expected acceleration of inflation, the base rate of the NBK will settle at around 12-14% in 2022.
