Azerbaijan’s economy is expected to outperform in terms of growth in 2023 relative to the historic 10-year average of 1.3% recorded between 2011 and 2021, Report informs referring to Fitch Solutions.
“We retain our view that growth will slow to 3.7% in 2023 given the market’s sensitivity to global energy prices which we expect will weaken over the course of the year,” Fitch noted.
Fitch Solutions has revised down growth estimate for Azerbaijan’s economy in 2022 from 5.1% to 4.5%. This reflects figures from November 2022 that suggests that, on an annualized basis, the economy has grown by 4.8% slowing from 5.6% at the end of 2021.
“Global energy prices spiked in 2022 following the invasion of Ukraine by Russia which then led to sanctions against Russian energy trade imposed by the US and the European Union. Towards the end of 2022, energy prices fell sharply partly due to expectations of global recession in 2023 and a warmer-than-expected winter in Europe which lowered seasonal gas consumption. Our oil and gas team forecasts that in 2023 oil prices will average $95/bbl compared to $102/bbl in 2022 and natural gas prices will fall from an average of 133 euros per MWh in 2022 to 125 euros per MWh. Although downside risks to these figures have risen in recent months, we believe that energy prices will still remain above pre-war and pre-pandemic levels,” reads the report.
Lower oil and gas prices in 2023 will weigh on the country’s energy sector which accounts for over 50% of the Azerbaijani economy.
“That said, we believe that gross fixed capital formation will contribute more towards growth in 2023 and beyond as European demand for Azerbaijani energy exports rises, necessitating investment into capacity building.”