Azerbaijan's non-oil sectors set to thrive, despite oil decline

The World Bank (WB) has projected that Azerbaijan's economy will grow at a rate of 2.7 per cent in 2025, with subsequent years seeing a gradual slowdown.

The country's GDP growth is expected to decline to 2.4 per cent in 2026, 2.3 per cent in 2027, and further drop to 2.2 per cent between 2028 and 2029. On average, the economy will expand by 2.4 per cent annually from 2025 to 2029, Caliber.Az reports via local media.

The WB attributes this slowdown, in part, to a decline in oil production due to the aging of the country's key oil fields, particularly the Azeri-Chirag-Gunashli block in the Caspian Sea. Natural gas production from the Shah Deniz field is expected to stabilize after peaking in 2024 and 2025.

However, the non-oil sectors, such as services and construction, are anticipated to grow at a more robust rate of 4 per cent per year. The construction sector, in particular, is likely to remain driven by public investment.

The World Bank emphasized that the country's economic growth could accelerate if structural challenges, such as the high level of state involvement in the economy, underdeveloped financial markets, and inadequate human capital, are addressed. This would require effective enforcement of recently implemented competition laws and reforms in the financial sector.

The WB also noted that Azerbaijan's external and fiscal positions are expected to remain stable in the medium term, though surpluses may narrow due to declining revenues from the hydrocarbon sector, which is aligned with falling production capacity.

Nevertheless, the economic outlook faces several risks, including geopolitical instability, global economic fluctuations, and environmental challenges, the WB cautioned.

Azerbaijan's Ministry of Economy forecasts a 3.5 per cent growth in GDP for 2024, while the Central Bank expects a 3.3 per cent increase. International rating agencies have differing projections for 2025-2026. S&P Global anticipates a 2 per cent growth rate, while Fitch Ratings expects 3 per cent growth in 2025 and 2.4 per cent in 2026. Moody's forecasts a steady 2.5 per cent growth annually. Meanwhile, Dutch bank ING predicts a 2.6 per cent growth rate for 2024, with an increase to 2.8 per cent in 2025.

Azerbaijan’s economy grew by 4.1 per cent in 2024.

By Vafa Guliyeva