Azerbaijan Country Economic Update, October 2025

World Bank

Azerbaijan Country Economic Update, October 2025

Autores

World Bank

Editor

Washington, DC: World Bank

Descripción

Economic growth decelerated to 1.5 percent in the first half of 2025, driven by contraction in the hydrocarbon sector and marked slowdown in non-hydrocarbon sector output. Hydrocarbon sector output fell 3.2 percent (you) as daily crude oil production declined 3.1 percent (yoyo) while natural gas production levelled. Non-hydrocarbon sector growth slowed to 3.9 percent in H1 2025 from 6.9 percent in H1 2024, as activity normalized in construction, transport, ICT, and retail trade following strong gains last year. Despite this slowdown, agriculture and hospitality have maintained momentum. Inflation edged down by end-June as domestic and external pressures subsided. Annual Inflation remained elevated in the first quarter at 5.5 percent due to high food and services prices fueled by direct and indirect effects of the hike in administrative prices in mid-2024 and in early 2025. In the second quarter, inflationary pressures eased, and annual inflation eased to 4.8 percent closer to the central point of CBAR’s inflation target range (4+/-2 percent). CBAR has kept the policy rate unchanged at 7.25 percent since May 2024. External and fiscal accounts retained significant surpluses, albeit moderated due to lower hydrocarbon sector inflows. The Current Account Balance surplus eased to 6.3 percent of GDP in H1 from 7.7 percent of GDP in H1 2024, reflecting subdued hydrocarbon exports and a moderate pick up in imports. The fiscal surplus eased to 7.7 percent of GDP in H1 2025 from 10.3 percent in H1 2024 as revenues levelled while expenditures expanded, though at a moderate pace. In H1 2025, non-hydrocarbon primary balance widened to 14.7 percent of non-hydrocarbon GDP from 13.9 percent in H1 2024 as non-hydrocarbon sector revenue collection slowed. Macroeconomic buffers continued to be strong, with SOFAZ reserves increasing by 13.2 percent (joy) by end June and amounting to USD 65 billion (88 percent of GDP). CBAR reserves inched up to USD 11.5 billion equivalent to 5.6 months of imports. Looking ahead, economic growth is projected to remain low in 2025 and in the medium-term, as domestic demand eases on the back of slowing fiscal spending. Growth is projected to average 1.7 percent in 2025-2027 as the fiscal policy is expected to become tighter in the face of declining crude oil prices. Inflation is expected to stay within the Central Bank’s target range. Lower projected hydrocarbon prices will put downward pressure on fiscal and external balances. Downside risks include protracted low growth of the economy and steeper fall in energy prices which could affect macroeconomic stability. While macroeconomic buffers remain sufficient to counter the risks looming, the resilience of the economy in the medium to long term will be largely determined by the degree of success in moving towards a more diversified growth model, which requires significant structural reforms.