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Oil dependence recovers along with Azerbaijan economy coming out of stagnation

According to ACRA estimates, the Azerbaijani economy is coming out of stagnation. This year, the economy will grow by 1.5%. The key drivers include recovering external demand for a basic export commodity and growing non-primary economy as a phenomenon of delayed activity. However, according to ACRA analysts, no significant growth drivers are expected to emerge until 2022, and the annual growth will be within 3.2%.

The regulator has managed to cap the inflation, which reached double-digit values in 2016 and 2017. The surge was caused by a shock in the exchange rate dynamics and a high level of import dependence. According to ACRA estimates, in 2018–2022, the inflation will be in range 4–6%, following the counter-cyclical regulatory policy and the end of the translation of the exchange rate shock into price formation.

Significant dependence of the economy on mineral resources remains the main risk. At the same time, the basic forecast scenario implies a low probability of worsening demand; the trade balance will remain positive, provided that price for Azeri Light is $45 per barrel or higher. In this case, manat will demonstrate stability; the probability of devaluation is low.

The share of mining sector in the industry of Azerbaijan is growing again. The recovery in industrial production has occurred solely due to growth in mining industries, and the share of manufacturing sector has fallen to 28% of the industrial production volume (63% in 1997). Negative dynamics of lending activity aggravates this trend.

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