Manufacturing output in Kazakhstan contracted markedly during February, with companies experiencing a further reduction in new orders, according to the Freedom Holding and S&P Global Purchasing Managers’ Index (PMI) survey for the month.

Firms responded by lowering employment, purchasing activity and inventory holdings, the assembled data showed.

“Meanwhile, the impacts of January's VAT increase meant that input costs and output prices rose sharply again, albeit at softer rates than at the start of the year,” said the release published with the PMI. Business confidence, however, gained ground for the second month running, reaching its highest level since last October.

The Freedom Holding Corp. Kazakhstan Manufacturing PMI dropped to 48.1 in February from 49.8 in January. The PMI was thus in negative territory below the 50.0 nochange mark for the second month running, and signalled a modest deterioration in the health of the sector.

Business conditions overall worsened to the largest degree since August last year.

Yerlan Abdikarimov, director of the financial analysis department at Freedom Finance Global (a 100% subsidiary of Freedom Holding Corp), said: "Kazakhstan’s manufacturing sector, likely, entered a phase of active resource optimization in February amid a prolonged period of adjustment. The two-month decline in the PMI to 48.1 reflects both weak domestic demand and a forced strategy to protect operating margins under high tax pressure.

“We observe that companies have shifted to stringent cost management, evidenced by the simultaneous reduction in staffing levels and inventories – measures typically adopted by businesses when bracing for extended uncertainty.

“Nevertheless, the sustained optimism over a 12-month horizon indicates that market participants view the current downturn as a temporary correction, counting on the impact of planned investments and advertising campaigns. The key challenge for the sector in the coming months will be maintaining the balance between the need to raise output prices and the risk of further cooling consumer activity."