Azerbaijan Economic Forecast

Available data points to a lackluster Q2. Annual economic growth ticked up to 0.5% in January–June from 0.4% in January–March. The slight upturn came on the back of an improved performance in the oil and gas sector, which more than offset cooling non-oil-gas GDP growth. Notably, investment activity in both the oil and gas and non-oil-gas sectors dried up in Q2, weighing on the overall outturn. Meanwhile, output growth in the agricultural, transport and retail trade sectors was stable in Q2. On the external front, merchandise exports slipped into negative territory in Q2, mostly due to falling energy shipments. In July, economic activity picked up steam, hinting at accelerating GDP growth in Q3. In other news, tensions with Armenia lingered due to the continued Azerbaijani blockade of the Nagorno-Karabakh region despite ongoing discussions over a peace deal.

Inflation fell to 9.4% in July (June: 10.7%), thus remaining well above the Central Bank’s 2.0–6.0% target band. Our panelists see a continued moderation in inflation from its current level through year-end and next year, largely thanks to the lagged effects of higher interest rates. The persistence of external inflationary pressures will keep prices elevated, however.