Kazakhstan's service sector is losing momentum

The services sector in Kazakhstan lost significant momentum in February. New orders fell particularly sharply—the steepest decline in nearly four years. This is shown by the latest Purchasing Managers’ Index (PMI) from Freedom Holding and S&P Global.

The index for business activity fell to 48.0 points in February, down from 50.5 points in January. This brought it below the 50-point growth threshold. The reading signals a slight decline in business activity and marks the sharpest deterioration since February 2023. Activity contracted in four of the last five survey months.

New orders also declined significantly. Many companies reported weaker demand. At the same time, costs continued to rise.

Companies cite the VAT increase introduced at the beginning of the year as a major drag. Despite slightly falling inflation, it continues to drive up both input costs and selling prices.

Many service providers responded to weaker demand by cutting jobs, thereby reversing the slight increase in employment seen in January.

Despite the weaker business performance, sentiment in the sector has improved slightly. After hitting a low point in December, companies are looking slightly more optimistically toward the coming months, even though the overall business climate remains subdued.

Yerlan Abdikarimov, Head of Financial Analysis at Freedom Finance Global, explained that the services sector experienced its sharpest decline in demand in four years in February.

In January, many companies had tried to absorb the tax shock through lower margins. However, the current decline in employment and activity indicates that this internal buffer has largely been exhausted.

While overall inflation has eased slightly recently, cost pressures remain high. The gap between input costs and selling prices has more than tripled in 2026 compared to the average of the past two years. This underscores the growing pressure on margins amid weak demand.

At the same time, many companies expect a slight stabilization over the next twelve months. The industry is therefore showing cautious optimism as it adapts to the new fiscal environment.

This article was produced in cooperation with our partner bne intelliNews