Kazakh economy feels pinch of credit crunch

analysis

Kazakh economy feels pinch of credit crunch

By SRI ⋅ May 27, 2008 ⋅

Kazakh businesses must cut costs and become more focused if they are to benefit from government measures and ride out a credit crunch that has spilled over from banking and construction into the wider economy.

The global liquidity squeeze triggered by the U.S. subprime mortgage meltdown has left banks in the resource-rich Central Asian state with limited access to foreign borrowing, and has crippled the highly leveraged construction industry.

Companies from retailers to breweries to drugstore chains have felt the chill, cancelling orders and scrapping ambitious expansion plans in Central Asia’s biggest economy.

“Overall, the economy may weaken further,” said Magzhan Auezov, one of several managing directors at Kazkommertsbank KKGB.KZ (KKGByq.L: Quote, Profile, Research), the country’s largest lender.

“Everyone who is not exporting oil or minerals is feeling the effect of the liquidity crunch.”

Kazakhstan’s government expects gross domestic product growth to stall to 5.5 percent this year after averaging nearly 10 percent a year since 2000.

However, the creation of leaner companies and increased government spending, which will filter through to the banking system, could help the country bounce back in 2009 after the slowdown this year, analysts said.

Oil and metals are Kazakhstan’s major exports, but it was the banking sector that propelled the country’s rapid economic expansion in the last few years, fuelling investment and consumer demand.

By Olzhas Auyezov (Reuters)