S&P: Azerbaijan's economy will expand 3.5% in 2022

S&P Global Ratings forecast Azerbaijan's economy will expand 3.5% in 2022 following a strong 5.6% recovery in 2021, Report informs, citing the agency.

"However, medium-term growth prospects are weaker--averaging 1.3% annually over 2023-2025--amid declining oil production due to ageing fields that will likely be only partially offset by rising gas exports," S&P says.

The agency analysts note that Azerbaijan's economy is significantly dependent on the hydrocarbon sector, which is currently benefiting from favorable global oil prices. Oil and gas constitute almost 90% of exports and amount to about 50% of GDP.

"We now project that favorable terms of trade will persist for Azerbaijan over the rest of 2022 and in 2023. We expect that the Brent oil price will average $102 per barrel (/bbl) in 2022, $85/bbl in 2023, and $55/bbl in 2024-2025. In parallel, the OPEC+ group of countries (of which Azerbaijan is a member) has continued to taper back oil production quotas, in line with the agreement reached in July 2021.

In our view, the present environment will benefit Azerbaijan's economic, fiscal, and balance-of-payments performance," S&P notes.

Azerbaijan's non-oil sector has exhibited strong growth so far in 2022, up 9.6% year-on-year through June.

"The favorable trend has been fairly broad-based in terms of sub-sectors with transportation (34% growth), IT (14%), and industrial production (11.5%) all exhibiting strong dynamics. That said, we expect momentum to slow through the rest of this year, partly due to base effects but also as elevated inflation is likely to drag on consumption growth momentum. Beyond 2022, we also do not expect high growth rates in the non-oil sector to be sustained, given only limited progress in economic diversification and structural reforms in recent years," the report reads.