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By Trend

Inflation in Kazakhstan will remain within the target range of 6-8 percent in 2017 and will begin to smoothly enter into the corridor of 5-7 percent in 2018 on the baseline scenario, Kazakh Economy ministry says in its forecast published on November 15.

The baseline scenario envisages Brent oil price at $40 per barrel.

“Inflation will slow down as a result of stable situation in world commodity markets, neutral fiscal policy, weak domestic demand and saving behavior of economic agents, as well as due to the moderately restrictive monetary policy in 2016,” the ministry predicts.
The ministry noted that the external situation, in terms of inflation, will be favorable.

According to the forecast, slowing inflation in Russia, which is the main trade partner of Kazakhstan, will contribute to deceleration if imported inflation. Moderate growth of the world economy against the background of a high crop yield will contribute to the lower growth rates of food prices, the ministry said.

The stabilization of the world oil prices will induce low devaluation expectations and gradual adaptation of economic agents to the new macroeconomic conditions.
The main risk of accelerating inflation is a drop in oil prices below $30 per barrel and its presence at that level until 2Q2018, the ministry said.

In case of this risk realization, annual inflation will exceed the target corridor in 2017 and the first half of 2018.
An additional risk may arise from the increase in non-oil state budget deficit, compared to planned figure in 2017-2018.
The growth rate of Kazakhstan's economy is estimated at 0.2-0.5 percent in 2016 and 1.5-2 percent in 2017. The economic growth will be achieved by countercyclical economic policy aimed at mitigating the effects of deteriorating terms of trade. The economy will operate below its potential level until 1Q2018, reflecting deflationary pressures from domestic demand side.

External demand is expected to be positive with respect to its potential by the mid of 2018, primarily due to the acceleration of economic activity in Europe, which will have a positive impact on the export of Kazakhstan.

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