Economy growth surges by 6%

Economy growth surges by 6%

In a surprising twist, Kazakhstan's economy is thriving, according to Liter.kz. Despite a high base interest rate, the GDP grew by an impressive 6% in the initial four months of the year.

Previously, the National Bank revised its inflation forecasts, predicting a rise to within 10-12% by 2025. Financial experts advise that the National Bank needs to maintain a restrictive monetary policy to control inflationary pressure.

Rasul Rysmambetov, a financial analyst, explains that this GDP growth isn't primarily driven by active lending. Instead, it's mainly due to fiscal stimulus, including increased government spending, particularly on infrastructure projects. These funds eventually make their way to the population in the form of wages, company profits, and consequently, contribute to GDP growth. The primary drivers here are government and consumer spending. In conditions of fiscal stimulus and increased government spending, some funds are redistributed between different sectors. This redistribution is a normal situation, and it's important to note that high interest rates and the cost of credit resources don't always have a decisive influence on the economy, especially when the state plays an active role in it.

Rysmambetov expects the base rate to remain at its current level of 16.5%. However, the macroeconomic situation, which is largely dependent on developments in Ukraine and the success of peace initiatives, will significantly impact the decision on the base rate. If these initiatives are successful, an improvement in macroeconomic conditions can be expected.

The analyst notes that the effects of tight monetary policy are already starting to show, yet the credit market's influence on inflation is limited due to the active role of the state budget in the economy. Inflation expectations may have slightly decreased, but other factors play a more significant role in the current conditions.

In essence, fiscal stimulus and increased infrastructure spending have the potential to significantly boost GDP growth, particularly during periods of underutilization. However, in the context of high base interest rates and tighter monetary policy, their positive impact on GDP growth can be constrained by higher borrowing costs and the risk of crowding out private investment. The timing, scale, and financing of such fiscal actions become critical to balance short-term demand support with long-term growth sustainability.

The industry and business sectors may benefit from the increased government spending on infrastructure projects, as these funds can contribute to GDP growth by stimulating wages and company profits. The finance sector, however, may find its influence on the economy less decisive due to the high base interest rate and the active role of the state budget in controlling inflation.

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