Azerbaijan: Economy

Asian Development Outlook (ADO) 2014 forecasts for the Azerbaijan economy are maintained across the board. Gross domestic product (GDP) grew by 2.1% during the first half of 2014, sharply decelerating from 5.0% in the same period in 2013. The slowdown reflected mainly a 3.9% contraction in the oil sector, which accounts for half of GDP. However, growth in the rest of the economy also declined in the first half, to 7.0% from 10.9% a year earlier, partly because cuts in public investment slowed growth in construction. Despite the slowdown, the growth forecasts for 2014 and 2015 are maintained for two reasons. First, oil production is expected to catch up during the rest of the year, as oil wells other than the main Azeri-Chiraq-Gunashli platform are brought on line. Second, the government’s regional development program, approved early this year, is expected to complement the ongoing social housing program and rising demand for real estate in boosting investment in the second half of the year.

Selected Economic Indicators (%) - Azerbaijan 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 5.0 5.0 4.8 4.8
Inflation 4.0 4.0 3.5 3.5
Current Account Balance (share of GDP) 16.0 16.0 15.0 15.0

Source: ADB estimates.

The consumer price index showed a 1.6% increase in the first half of 2014, as food prices rose by only 1.2% and inflationary pressures from higher fuel tariffs were offset by price-controlled food markets and lower import costs from tax exemptions for some agricultural items and equipment. However, a cut in the central bank’s policy rate from 4.75% to 4.25% is expected to accelerate credit growth, boosting domestic demand and monetary expansion. Thus, the Update maintains the ADO 2014 inflation forecasts for 2014 and 2015.

External trade remains robust despite lower oil production during the first half of 2014. The current account surplus narrowed slightly to $6.2 billion in the first half of 2014. However, the trade balance for the full year is projected to be unchanged, as the imposition of new standards for imported cars and a slowdown in consumer lending reduced imports by some 20% in the first half of 2014 from the same period of 2013. Accordingly, the Update maintains the ADO 2014 forecasts for current account surpluses in 2014 and 2015.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.