On Course To Exploit Global Demand Recovery T he first signs of economic recovery have begun to play out across Central Asia, which for the most part has benefited from relative economic isolation and a lack of integration with global financial markets. Indeed, alongside our projection for Turkmenistan and Uzbekistan to return to pre-crisis levels of growth within 1-2 years, 
we have also revised up our 2009 growth estimates for Kyrgyzstan and Tajikistan, both to 3.0%. We expect Kazakhstan to be the only Central Asian republic to end 2009 in recession, owing to its heightened integration with global financial markets. However, our medium-term view is still optimistic, with growth expected to return to 5.5% by 2011.

According to data released by the State Statistics Committee, the Kazakh economy contracted by 2.2% y-o-y during January-September, which given the 2.3% plunge seen during January-June suggests that the pace of decline eased during the third quarter. This is reflective of the rally in global oil prices over this period on the back of improving global trade, which itself has been bolstered by unprecedented stimulus programs and sustained loose monetary policy the world over. Moreover, with Brent Crude oil trading between US $75-80/bbl since mid-October (up from the multi-year lows of US $35-50/bbl seen during Q109), we expect to see a more significant stabilisation in broader economic activity during the fourth quarter, keeping our -1.9% full-year growth forecast on track. U zbekistan pulled out of the Central Asian power grid on December 1. As a result, we believe this move has the potential to cause a severe energy crisis in impoverished neighbouring countries Tajikistan and Kyrgyzstan, particularly over the coming winter months. Only recently Uzbekistan claimed that Tajikistan had been stealing energy transmitted through Uzbek lines without paying for it ?? an accusation Dushanbe stringently denies. As a result, with Tajikistan and Kyrgyzstan both heavily reliant on electricity transmitted through Uzbek power lines (including re-exported energy from Turkmenistan), we foresee the potential for further trade disputes and retaliatory moves going forward.

By the beginning of 2010, for the first time in history Turkmenistan will begin channelling gas to China via the new Central Asian Gas Pipeline, whilst a new southern pipeline being constructed is set to almost double transportation of gas to Iran by the end of the year. Italian energy firm ENI has also expressed renewed interest in the construction of a gas pipeline connecting Turkmenistan to China and India. However, as the proposed pipeline would need to pass through Afghanistan, we do not see this becoming viable over the medium term as a result of ongoing security risks.