The latest Freedom Holding and S&P Global PMI survey shows that inflationary pressures across Kazakhstan’s services sector strengthened sharply in January as a VAT hike came into force.

Cost pressures rose at one of the fastest rates since the survey series began in March 2019, the accompanying report to the PMI data said. In response, service providers widely passed higher expenses on to customers, pushing selling prices up at a record pace.

Sentiment about the year ahead among services providers remained weak by historical standards, with business confidence only marginally above the recent low recorded in December, the data showed.

There were, however, some signs of stabilisation. Business activity returned to expansion after three consecutive months of contraction and service sector employment increased again in January.

The headline Business Activity Index, which tracks month-on-month changes in output and is seasonally adjusted, moved back above the no-change 50.0 threshold. The index rose to 50.5 in January from 49.5 in December, signalling growth for the first time in four months, albeit at a modest pace.

Yerlan Abdikarimov, director of the Financial Analysis Department at Freedom Finance Global, said: "In January, Kazakhstan’s services sector continued to record growth in business activity and demand. Despite a record increase in selling prices associated with VAT, services are traditionally characterised by lower volatility compared to manufacturing. Thanks to this resilience, the composite PMI was unchanged from its December level (49.7), allowing to avoid a more pronounced decline amid negative dynamics in manufacturing.

"At the same time, historically low 12-month expectations indicate that the services sector is, for now, offsetting the tax shock through its own margins. While risks of a delayed decline in purchasing power persist, market-reported decisions regarding the renewal of product lines and business models provide grounds to expect the sector to maintain relative resilience."