Kazakhstan's Manufacturing Sector: A Cautionary Downturn Amid Stronger Broader Economic Indicators

Kazakhstan’s economy has entered 2025 with a veneer of resilience, buoyed by a 4.8% GDP growth in 2024 and a projected 4.5% expansion this year, driven by fiscal stimulus and oil production surges [1]. Yet beneath this optimism lies a troubling divergence: while the broader economy accelerates, the manufacturing sector—a critical pillar of long-term diversification—has entered a precarious phase. The manufacturing PMI, a key barometer of sectoral health, fell to 49.9 in July 2025, signaling contraction for the second consecutive month [2]. This decline, despite a 6% year-on-year growth in manufacturing output in the first half of 2025 [3], underscores a paradox: a sector that is both vital and vulnerable.

The root of the problem lies in a confluence of external and internal pressures. Externally, global trade tensions and commodity price volatility have disrupted export markets, while internally, rising utility costs, currency depreciation, and input inflation have eroded profit margins. By July, input costs had hit a two-year high, driven by surging raw material and transportation expenses [4]. The Kazakh tenge’s depreciation, for instance, has amplified import costs for machinery and components, squeezing manufacturers reliant on foreign inputs [2]. These challenges are compounded by a slowdown in new orders, with firms reporting weaker demand conditions and reduced staffing levels [5].

Government interventions, while ambitious, have yet to offset these headwinds. The launch of the Future Growth Project at the Tengiz oil field and 190 manufacturing projects worth $2.9 billion in 2025 [6] signal a commitment to industrial modernization. However, structural bottlenecks—such as low productivity and declining investment—threaten to undermine progress. The National Development Plan’s goal of shifting to high-tech, export-oriented manufacturing is laudable, but its success hinges on resolving supply chain dependencies and mitigating currency risks [6].

For investors, the sector presents a high-stakes calculus. On one hand, Kazakhstan’s strategic location, natural resources, and government-backed infrastructure projects offer long-term potential. On the other, the current downturn highlights the risks of over-reliance on commodity-driven growth and underdeveloped domestic demand. The July PMI data, for example, revealed a 2.1% decline in basic metal production [3], a sector critical to downstream manufacturing. Such vulnerabilities could amplify exposure to global economic shocks, particularly if oil prices stabilize or decline.

A strategic risk assessment must also account for policy execution. While the government has allocated $15.5 billion to industrial projects [6], the effectiveness of these investments will depend on transparency, regulatory efficiency, and alignment with market needs. Investors should scrutinize the pace of project implementation and the extent to which reforms address labor productivity and energy costs.

In conclusion, Kazakhstan’s manufacturing sector is at a crossroads. The broader economy’s momentum offers a buffer, but the sector’s fragility demands caution. Investors must weigh the allure of growth against the realities of cost inflation, currency instability, and structural underperformance. Diversification strategies, hedging against commodity and currency risks, and a focus on high-value, export-ready projects may mitigate these challenges. Yet without systemic reforms, the sector’s potential will remain constrained by its current trajectory.

Source:
[1] World Bank: Kazakhstan Economic Update – January 2025 [https://www.worldbank.org/en/country/kazakhstan/publication/economic-update-january-2025]
[2] Kazakhstan's manufacturing remains subdued as output and employment decline, PMI data shows [https://www.intellinews.com/kazakhstan-s-manufacturing-remains-subdued-as-output-and-employment-decline-pmi-data-shows-394361/]
[3] Kazakhstan's Industry Grows 6.4%, Fueled by Oil and Manufacturing [https://astanatimes.com/2025/06/kazakhstans-industry-grows-6-4-fueled-by-oil-and-manufacturing/]
[4] Kazakhstan Manufacturing PMI [https://tradingeconomics.com/kazakhstan/manufacturing-pmi]
[5] Manufacturing output down again as new order growth slows in Kazakhstan [https://kz.kursiv.media/en/2025-08-01/engk-tank-manufacturing-output-down-again-as-new-order-growth-slows-in-kazakhstan/]
[6] Kazakhstan's Next Chapter: $15.5 Billion Boost for Industry, 17 Megaprojects Ahead [https://astanatimes.com/2025/06/kazakhstans-next-chapter-15-5-billion-boost-for-industry-17-megaprojects-ahead/]