Country Economic Forecasts > Azerbaijan

In line with neighbouring Russia and Kazakhstan, Azerbaijan has been battered by recent market turmoil. Following pressure on a still overvalued AZN, which saw reserves fall nearly 60% in the year to November, the central bank stopped supporting the AZN on 21 December. This triggered a plunge of 35% against the US$, with the authorities moving to a managed float of the AZN.As a result of the mounting pressures, GDP growth slowed dramatically at the end of 2015, averaging just 1.1% for the year. And we now forecast that GDP will contract 1.3% in 2016. Economic activity will be depressed by the impact of falling oil prices on exports and government revenues, as well as fiscal consolidation and the impact of devaluation on households' purchasing power. Inflation jumped from a 9-month low of 3.4% in October to 7.8% in December after the AZN devaluation and, with the impact of the latter still feeding through and the exchange rate continuing to fall, the rate soared to 13.8% in January. We now forecast average inflation of 10.9% in 2016, in line with the government's new forecast of 10-12%.And declining oil prices pushed the current account into deficit in 2015, estimated at 2.5% of GDP. We expect the deficit to widen sharply to some 14% of GDP in 2016, before falling again as oil prices start to rise.