Azerbaijan Economic Forecast

Cumulative GDP data revealed that the economy continued to expand in March. Retail sales growth accelerated slightly as inflation ticked down in the month. That said, industrial production growth in the non-oil and gas sector weakened. Shifting to Q2, domestic activity is likely slowing due to higher interest rates. In other news, in late April several Eastern European gas operators reached an agreement with Azerbaijan to boost shipments, boding well for the all-important oil and gas sector. Meanwhile, hostilities with Armenia intensified. On 11 April, a firefight between the two nations took place close to the contentious Lachin Corridor. Both sides blamed each other for the clash, which was the deadliest since last September. Later, on 23 April, Azerbaijan established a checkpoint on the Corridor, further inflaming tensions and portending bad news for regional trade.

Inflation came in at 13.6% in March, down from February’s 14.1%. Inflation is seen softening further in the coming months as the effect of recent interest rate hikes is increasingly felt. However, it is still forecast to average above the Central Bank’s 2.0–6.0% target band this year.