Europe Edge

Research evidence excerpt

Europe Edge

by Moody’s, which removed its negative June. Headline inflation edged down to 10.3% oya in June

outlook on the country. Our analysis focused primarily on ser- from 10.4% in May, a slight improvement, but insufficient to

vices and capital flows, noting that ICT had emerged as a sec- justify further easing. The economy continues to run hot:

ond engine of FX earnings alongside tourism, while net FDI growth remains relatively resilient despite CPC-related dis-

inflows nearly doubled year-on-year basis in 1Q26. The latest ruptions in 1Q26, with the short-term economic indicator

goods trade data adds further encouragement to this picture. holding at 5% in June.

Imports for the first half of the year held broadly flat at

around USD 9bn — notable in itself given that the economy As we highlighted last week, the disinflation path faces sever-

continues to expand at a robust pace — while exports jumped al obstacles. Market-driven services inflation remains sticky,

to USD 3.9bn from USD 3.2bn a year earlier, driving a mean- unprocessed food prices have reaccelerated, and core goods

ingful improvement in the trade balance (Figure 4). disinflation is likely to encounter headwinds as the tenge

moves into a less favorable balance-of-payments seasonality

FX reserves also strengthened, rising from USD 6.3bn in 1Q in 4Q. An additional complication is the ongoing fuel crisis in

to USD 7.1bn in 2Q, likely reflecting continued momentum Russia and Kyrgyzstan, which has incentivized residents of

in services exports, remittances, and FDI inflows (Figure 5). neighboring countries to engage in cross-border “fuel tour-

Taken together, these dynamics point to a further narrowing ism.” While an export ban on gasoline and diesel via road and

of the current account deficit.