WB renews economic growth forecasts in Azerbaijan

The World Bank (WB) forecasts economic growth in Azerbaijan at 2.3 per cent in 2024, and 2.4 per cent in 2025 and 2026.

The GDP growth rate in 2024-2025 decreased by 0.1 percentage points compared to the January forecast, Report informs citing the April World Bank report on Europe and Central Asia “Unlocking the Power of the Private Sector” released on April 11.

According to the WB's expectations, economic growth in Azerbaijan this year will be stipulated by a slight decline in crude oil production due to the commissioning of new oil platforms.

“Non-energy sector is expected to increase to four per cent in 2024, mainly through expansion in the construction sector thanks to the public sector investments in reconstruction,” the report says.

“The growth rates are also expected to be maintained in other sectors. As for the demand, consumption growth is expected to stabilise, while investment growth is projected to remain moderate through the state investments but constrained by growth in private investments,” the report says.

The WB forecasts in the medium term that GDP growth will fluctuate around 2.4 per cent, but could accelerate through fast implementation of structural reforms.

A three per cent growth is expected to be observed in agriculture during 2024-2026 compared to 3.2 per cent growth in 2023, a 0.2 per cent growth in industry compared to a decrease of 0.9 per cent in 2023, a 5.3 per cent growth in the services sector in 2024-2025 and a 5.2 per cent growth in 2026 compared to a 3.8 per cent growth in 2023.

According to the report, gross fixed investments will increase by 5.4 per cent in 2024, 3.9 per cent in 2025, and 3.5 per cent in 2026. The growth was 9.6 per cent in 2023.

“The economic growth in Azerbaijan slowed to 1.1 per cent as a result of a decrease in oil production and sluggish growth in the non-energy sector in 2023. Annual inflation sharply decreased to 2.1 per cent as external and internal pressure decreased. High energy prices contributed to big external and fiscal surpluses,” the report says.

“The growth is forecast to reach about 2.5 per cent as the decline in crude oil production will slow and non-energy sector growth will accelerate in the medium term. Azerbaijan's dependence on hydrocarbons as its main source of exports and fiscal revenues remains its main vulnerability. This poses a risk to the long-term growth prospects due to a decrease in oil production, oil price volatility and the global transition from fossil fuels,” the report says.

According to the WB analysts, the holding of the 29th session of the Conference of the Parties to the UN Framework Convention on Climate Change (COP29) in Azerbaijan in November 2024 could be an opportunity to step up efforts to mitigate and adapt to climate change.

“Eliminating distortionary subsidies for fossil fuels could greatly reduce emissions and accelerate the transition to a green economy,” the message says.

The Azerbaijani government forecasts GDP growth at 2.4 per cent for 2024.