Russia’s Gazprombank renews forecast for economic growth in Azerbaijan

In the coming year, amid an average Brent price of $93/bbl, economic growth in Azerbaijan may normalize to 3% from 4.6% last year, Gulnara Khaidarshina, deputy head of research, chief CIS economist at Russia’s Gazprombank, said after the meetings held in Baku, Report informs.

“Taking into account the results of our trip, we updated our forecast for Azerbaijan’s economic growth. Last year, we expected Azerbaijan's economy to grow by about 4%, but this forecast did not yet account for the series of OPEC+ decisions to significantly reduce oil production to maintain favorable prices on the global hydrocarbon market. This contributed to a 7.5% YoY decline in Azerbaijan's oil production in 1Q23,” she said.

In 2024, given a likely correction in Brent price to $80/bbl, but with support from further development of the non-oil and gas sector, growth will accelerate to 3.5%. “Thus, we expect Azerbaijan’s economy to become increasingly less sensitive to fluctuations in hydrocarbon prices in the medium term,” she noted.

The non-oil and gas sector will be the main driver of economic growth in 2023-2024. According to the bank’s estimates, the share of the non-oil and gas sector in Azerbaijan's total GDP will increase to 66% this year and reach 68% in 2024. If such a dynamic is maintained, the share of the hydrocarbon component in Azerbaijan’s economy may fall to below 30% in the medium term.

“This will be facilitated by the expansion of consumer activity aided by an influx of tourists and the creation of new jobs, new projects in Karabakh, as well as infrastructure projects related to Azerbaijan’s strengthening role as a Eurasian logistics hub. We also expect the importance of the digital component in GDP to grow as the Digital Silk Road project develops,” she noted.

Earlier, Azerbaijan’s Central Bank expected economic growth in the non-oil & gas sector to total around 4%, with aggregate GDP growth amounting to roughly 2%, driven by contraction in the oil and gas sector.

“Economic growth will be supported by expansion of domestic consumption amid rising pensions and wages in the public sector, for which about 750 million manats [about $441 million] in budget expenditures has been allocated. That said, an increase in domestic demand is one of the factors driving the refinancing rate higher. The CBAR intends to revise its economic growth forecast in the near future, which we believe will be linked to the revision of budget parameters for 2023, as was announced in mid-April during a meeting of the Economic Council chaired by Azerbaijan's prime minister. Given elevated domestic demand, we do not exclude that the economic growth forecast will be revised upward.”

The Azerbaijani government predicts GDP growth at 2.7% in 2023, 4.1% in 2024, and 3.7% in 2025 (the average annual growth rate for 2023-2025 is 3.5%).