BAKU, Azerbaijan, November 2. Kazakhstan's manufacturing sector showed signs of stabilization in October as the pace of decline slowed to its weakest level since the downturn began in January, according to the Freedom Holding Corp. Kazakhstan Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global.
"There were tentative signs of recovery in the Kazakhstan manufacturing sector during October as business conditions deteriorated to a much lesser degree than in September," the report said.
The PMI rose to 49.4 in October from 46.4 in September, although it remained below the 50.0 mark separating growth from contraction. The reading indicated a slight deterioration in the sector's conditions, the mildest since the current 10-month sequence of decline began in January.
According to the report, new orders neared stabilization at the start of the fourth quarter, falling only marginally and at the slowest pace in six months. Survey respondents reported lower volumes of customer requests but also some tentative signs of improving demand. Manufacturing output also decreased at a much slower pace than in September.
Firms continued to reduce output in response to lower new orders, although some respondents said upgraded machinery had helped limit the latest contraction. Employment also showed signs of improvement, declining only fractionally. While some companies continued to cut staff, others filled previously vacant positions.
Despite these improvements, spare capacity remained evident in the sector, with outstanding business and stocks of finished goods falling markedly. In both cases, however, the pace of decline was the slowest in six months.
Business confidence remained subdued as challenging economic conditions made the outlook for the coming year uncertain. Confidence in production over the next 12 months fell from September and remained among the lowest levels since the COVID-19 pandemic. Companies that remained optimistic linked their outlook to expectations that new orders would return to growth.
Manufacturers reduced purchasing activity for the fifth consecutive month in October. Purchased inputs were often used directly in production, contributing to the continued decline in raw material stocks. Supplier delivery times lengthened to the greatest extent in two years, with companies reporting customs delays at the borders with mainland China and Russia.
Cost pressures also remained significant. Input prices rose markedly, with the rate of inflation in line with the average recorded in the third quarter. Some companies reported higher prices for energy and oil-related products. Higher costs for energy and raw materials led manufacturers to raise their selling prices. The rate of selling price inflation accelerated from September but remained relatively moderate.
Saltanat Mukhambetaliyeva, Economics Research and Analytics Head at Freedom Holding Operations LLP, said October's results offered grounds for cautious optimism, primarily due to the easing downturn among larger producers.
"However, improving sentiment in some segments is still running ahead of a recovery in demand. In chemicals and basic metals, rising expectations for the year ahead coincide with declining orders, while shrinking raw material stocks leave production more vulnerable to delays in deliveries of raw materials and components," she said.
Mukhambetaliyeva added that competition from imported finished goods amid a strong tenge could pose an additional constraint for the food and beverage sector. She noted that future performance would depend not only on an increase in new orders but also on manufacturers' ability to maintain profit margins amid adverse domestic and external conditions.
The Freedom Holding Corp. Kazakhstan Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 250 manufacturers.
The PMI is a weighted average of five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers' Delivery Times (15%), and Stocks of Purchases (10%). For the PMI calculation, the Suppliers' Delivery Times Index is inverted so that it moves in a comparable direction to the other indices.
