Azerbaijan: June macro data confirms lackluster economic performance

CAUCASUS / CENTRAL ASIA - In Brief 25 Jul 2023 by Ivan Tchakarov

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The set of key macroeconomic indicators released by the Central Bank of Azerbaijan in June confirms disappointing economic performance so far in the year. Preliminary data just released by the central bank indicates that 1H23 GDP barely eked out a positive growth of 0.5 percent YoY Ytd, down from the 0.7 percent print over Jan-May (Graph 1). The Jun worsening is mainly driven by nonoil GDP, which lost some steam from 4.0 percent YoY Ytd during Jan-May to 3.1 percebt YoY Ytd during Jan-Jun. In contrast, oil GDP has been gingerly recovering some ground over the last couple of months in sympathy with the recent modest runup in oil prices. Graph 1 Disappointing growth performance is driven both by oil and nonoil GDP Source: Statistical Office of Azerbaijan, Author's calculations The data lends strong support to our recent decision to downgrade 2023 GDP growth from 2.5 to 1.5 percent. We revisited our 2023/2024 GDP growth forecasts for the CCA region last week. While we upgraided our projections for almost all individual economies, we singled out Azerbaijan as the only country in our space that has exhibited less constructive momentum so far in the year. We argued that this lackluster performance can be best explained by existing constraints on oil production and less exciting oil prices. In addition, having the highest inflation in our sample of analyzed countries has led us to believe that the central bank may need to keep the policy rate unchanged as long as the end of this year, which would also create headwinds for the economy. At the same time, the expected deceleration of inflation in 2H23 may provide some boost to consumer incomes, thus spurring domestic demand over...