Kazakh economy expanded 5.6% as waning demand stalled growth

Gross domestic product expanded 5.6 percent in the first half from a year earlier, unchanged from the first quarter, the Astana-based State Statistics Agency said in an e-mailed statement today. The median estimate of three economists surveyed by Bloomberg was for a 5.2 percent advance.

Slowing economic growth in China and Russia, Kazakhstan's largest trade partners, and the deepening European debt crisis are testing the resilience of the biggest energy producer in central Asia. The government of President Nursultan Nazarbayev is counting on domestic consumption to balance shrinking export revenue as it targets growth of about 7 percent this year and seeks to safeguard that pace of expansion until 2015.

"The slowdown in economic growth is first of all related to weak statistics in the natural resources extraction sector," Sergei Konygin, an economist at Troika Dialog, said by e-mail today. "We don't expect any acceleration in output, primarily because of a constantly weakening global demand for raw materials."

Industry Slumps

Kazakh industrial output unexpectedly shrank in July for a second month as production of metals slumped, dropping 0.5 percent from a year earlier after a 1.7 percent decrease in June. Production fell 3.5 percent in July on a monthly basis.

Kazakhstan doesn't have outstanding foreign-currency bonds after redeeming its last notes in 2007, so investors speculate on its creditworthiness by trading credit-default swaps. The cost of protecting Kazakh debt against nonpayment for five years using CDS dropped 117 basis points from this year's high in January to 201 in London today, according to data compiled by Bloomberg.

An industry slowdown is a drag on the broader economy even as the country's oil output remains stable, said Sara Alpysbayeva, head of the Astana-based macroeconomic and applied mathematics center at the Institute of Economic Studies. The rate of growth in the metals and mining industry is easing, she said.

A poorer grain harvest is also constraining growth, said Gennadiy Babenko, an analyst at Renaissance Capital in Moscow. Kazakhstan cut its crop forecast by more than 50 percent to 12.8 million metric tons this year because of unfavorable weather conditions. The country harvested a record 26.9 million tons of grain in 2011, according to the State Statistics Agency.

Oil, Zinc

Prices of the country's main exports such as crude oil, copper and zinc retreated in June by an average 4.7 percent from May, dropping by 7.6 percent from a year earlier, statistics agency data show. The Kazakh unit of ArcelorMittal (MT) said output was "worse than expected" in the second quarter as production of liquid and rolled-steel products shrank, Kazinform cites Bloomberg.

With a population of less than 17 million, Kazakhstan's reserves of oil, coal, uranium and other raw materials rank it among the world's best-endowed nations, according to Troika Dialog. Its mineral wealth is equivalent to about $300,000 per capita, twice the level of Russia and more than Australia, Troika estimates. Kazakhstan holds about 3 percent of the world's oil reserves according to BP Plc (BP).

 Read more