EBRD projects steady growth for Azerbaijan despite oil, gas sensitivity

The European Bank for Reconstruction and Development (EBRD) has projected a 3 per cent growth for Azerbaijan’s economy in 2025, followed by a 2.5 per cent expansion in 2026.

These growth estimates have been revised upward by 0.3 percentage points from previous forecasts in September, says the EBRD’s Regional Economic Prospects latest report published in February, Caliber.Az informs per local media.

The report highlights that Azerbaijan's economy remains highly sensitive to fluctuations in oil and gas prices, as well as ongoing geopolitical tensions in the region. However, it also identifies potential growth opportunities, particularly in the transport and logistics sectors.

The development of the Middle Corridor, which connects China to Europe, could play a significant role in expanding Azerbaijan's freight transport capabilities. Additionally, the government's investments in infrastructure, agriculture, and defence are expected to bolster public consumption.

In terms of recent economic performance, the EBRD notes that Azerbaijan experienced a notable acceleration in growth during 2024, driven largely by non-oil sectors and public investment. Real GDP expanded by 4.1 per cent, a significant improvement from the 1.1 per cent growth seen in 2023. The non-oil sector grew by 6.2 per cent, up from 3.7 per cent in the previous year. The oil and gas sector also returned to growth in March 2024, primarily due to an increase in gas production for European markets.

Economic activity in the country was further supported by rising real incomes and infrastructure investments, while inflation remained relatively subdued. By April 2024, annual inflation had fallen to 0 per cent, the lowest level in over nine years, before rising to 4.9 per cent by year-end. The EBRD attributes this price stabilization to government regulation and lower global food prices.

The report also noted that the Central Bank of Azerbaijan (CBA) reduced its key interest rate by a total of 175 basis points in late 2023, from 9 per cent in November to 7.25 per cent by May 2024. This decision followed a decline in inflationary pressures. Despite strong credit growth exceeding 20 per cent in 2024, the CBA has introduced a countercyclical capital buffer of 0.5 per cent, set to take effect in March 2025.

By Vafa Guliyeva