Strong GDP growth amid stagnating foreign trade
The Uzbek economy is expected to grow by 5.6% this year. Growth is driven by investments and private consumption. GDP per capita is expected to exceed USD 3,000 for the first time. However, part of this development can be attributed to an adjustment of the estimate of the shadow economy in the service sector, which has increased the nominal GDP in official statistics.
The trade momentum slowed in 2024 despite high economic growth. Goods exports rose by just 4% yoy in the first ten months of 2024 and goods imports by just 2%. A side effect of stagnating trade is the decline in the current account deficit to an estimated 6.3% of GDP in 2024. Facilitated by the increase in energy tariffs for households, the budget deficit is expected to fall to a moderate 3.5% of GDP in 2024.
Despite the favourable economic development, many challenges remain. These include, for example, the deficit in energy supply and the dominance of state-owned companies in certain economic sectors such as the banking sector. Sustained high growth will also depend on overcoming these challenges.
Strong economic growth
The Uzbek economy grew by 6.6% yoy in real terms in the first nine months of 2024. The IMF is forecasting a growth of 5.6% for the whole year. A similar rate is expected for 2025.
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The drivers here are investments and private consumption. Investments rose by 36.6% yoy in the first six months of 2024. Consumption increased by 11.3% yoy in the first nine months of 2024. Sectoral growth is broad-based. In the first nine months of 2024, high growth rates were recorded in construction (+9.0% yoy), services (+7.5%) and industry (+7.0%). As in previous years, only the agricultural sector grew at a below-average rate of 3.1% yoy.
Revision of the GDP statistics
In 2024, a revision of the estimate of the shadow economy in the construction, hotel and restaurant sectors was carried out by the Statistics Agency of Uzbekistan. The new estimate was based on a survey of 7,000 households. It was found that significantly more money is spent for these services than previously assumed. The estimate of value added in the hotel and restaurant sectors increased almost 8-fold as a result, while value added in the construction sector is now around a third higher. GDP and growth rates were recalculated on this basis for the past years. As a result, total GDP in 2023 was 11.8% higher than before the adjustment. The improved estimate and adjustment were made with the approval of the IMF. GDP per capita is expected to exceed USD 3,000 in 2024 due to growth and the GDP adjustment.
Relatively high but declining inflation
Inflation was 10.2% in October 2024 compared to the same month of the previous year. This is relatively high in a regional comparison. The increase in energy tariffs for households in May 2024 contributed significantly to growth of prices.
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The increase was nevertheless important and necessary for the consolidation of the state budget and to incentivise more efficient use of electricity and make investments more attractive. Despite further planned tariff in-creases, inflation is expected to fall gradually e.g. it is expected to be below 8% yoy by the end of 2025.
Stagnation in trade in goods
In the first ten months of 2024, Uzbekistan exported goods worth USD 16.7 bn. Exports increased in particular for energy (USD +361 m), inorganic chemicals (USD +294 m) and fruit and vegetables (USD +284 m). By contrast, gold exports – by far the most important Uzbek export product in recent years – decreased slightly. Overall, export growth in 10M2024 was at a relatively low with 4% yoy.
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In the same period, goods worth USD 29.0 bn were imported. The increase was due to higher energy imports (USD +1.2 bn) and higher imports of electrical machinery (USD +495 m). Imports of means of transport, in particular motor vehicles and aeroplanes, on the other hand, decreased significantly. Overall, the growth in imports of goods in 10M2024 amounted to a low 2% compared to the same period in the previous year. Trade in goods thus developed much less dynamically than in previous years. This is surprising in view of the strong economic growth, but can be explained by one-off ef-fects. On the export side, these are the lower gold exports. On the import side, this is due to the high motor vehicle and aircraft imports last year, which have fallen in comparison this year.
With stagnating trade, the current account deficit in relation to GDP will decrease significantly in 2024. So far, the deficit has grown due to the sharp rise in goods im-ports. After a current account deficit of 7.7% in 2023, the deficit is expected to amount to 6.3% of GDP this year.
Decreasing budget deficit
Alongside the current account deficit, the relatively high budget deficit was a second weak point in the solid macroeconomic situation last year. This year, the deficit is estimated to amount to a moderate 3.5% of GDP. In addition to the revision of GDP, the energy tariff adjustment has contributed significantly to the decline of the budget deficit. A further decline in the deficit is expected in 2025, with increased privatisation revenues expected to play a role.
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Debt is expected to amount to a very moderate 34.3% of GDP in 2024. Uzbekistan is mainly indebted to international donors and other countries on favourable terms. Government debt is expected to fall in relation to GDP in 2025 due to a low budget deficit and high economic growth.
Conclusion and outlook
According to current forecasts, the strong growth of the Uzbek economy will continue in the coming years. Both the current account and budget deficits are expected to decrease; this so-called twin deficit was seen as a weak point in the otherwise solid macroeconomic situation. The economic outlook therefore remains good. For long-term and sustainable growth, however, many challenges still need to be overcome. These include, for example, the deficit in energy supply, improving conditions for investors and reducing the share of state-owned companies in some sectors such as the banking sector.
