Growth accelerated to 5.8% in 2013 from 2.2% a year earlier, reflecting recovery in the oil sector and continued growth in the rest of the economy. Declining oil prices squeezed export earnings and narrowed the current account surplus to 16.7% of gross domestic product. Growth is projected to moderate to 4%-5% in 2014 and 2015 as industry grows more slowly.

Economic performance

Growth accelerated to 5.8% from 2.2% in 2012, driven mainly by a 10% expansion in the 52% of the economy not directly connected with oil.

On the supply side, rapid growth in non-oil activity and a resumption of growth in petroleum enabled industry (excluding construction) to expand by 1.2% after the 3.3% decline in 2012. Food processing, construction materials, and machinery all expanded, benefitting from significant public investment, bank lending, and support from the Entrepreneurship Support Fund. Petroleum output rose by 1.0%.

On the demand side, private consumption, public investment, and net exports all expanded. Rising incomes attributable to higher salaries and pensions and increased consumer lending fueled private consumption. Gross fixed capital formation rose by 11%, mainly reflecting higher investment in the non-oil economy, much of which was supported by government development programs.

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

Source: Asian Development Outlook (ADO) 2014; ADB estimates.

Economic prospects

Growth is forecast to slow to 5.0% in 2014 and decelerate further to 4.8% in 2015, mainly because of an anticipated moderation in public expenditure and slowing expansion in the oil industry. Large public sector programs, including public investments in infrastructure, will continue to propel growth, though declining oil prices and limited increases in production will constrain how much petroleum income can finance the promotion of other activities.

Recently approved state programs for the development of Baku, the capital, and of the regions will identify new opportunities for public investments to diversify the economy. Attempts to make the budget less dependent on oil revenues may further cut public investments in coming years, possibly slowing growth more than currently projected.

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