ADB Adjusted GDP Growth Rate for Azerbaijan from 4,1 % to 3,0 %

ADB adjusted GDP Growth Rate for Azerbaijan from 4,1 % to 3,0 %

Asian Development Bank (ADB) adjusted GDP Growth Rate for Azerbaijan from 4,1 % to 3,0 % according to updated Asian Development Outlook. In the first half of 2012, GDP grew by 1.5% on an annual basis, up from 0.9% in the same period of 2011 but still anemic, primarily reflecting inefficient oil well operation in Azerbaijan. The continued contraction of oil production has dampened expectations for growth, despite government commitment to continue its ambitious social and infrastructure programs. Industry is likely to contract with reduced oil output. Growth in services (led by retailing, communications, and tourism), construction, and agriculture drove the non-oil economy up by 11.3% in the first half of 2012. Intensive construction in the first half of 2012 helped that subsector soar by 29.5% over the same period of 2011. Inefficient oil production nevertheless prompts the Update to revise the April forecast for growth in 2012 downward to 3.0%, while maintaining the 2013 forecast at 3.5%. Oil revenues in the form of transfers from the State Oil Fund of Azerbaijan continue to be the prime funders of the budget.

The government increased budget revenues and expenditures at the midyear review, mainly to fund the reconstruction and rehabilitation of infrastructure damaged by the earthquake and flooding early in 2012. Year-on-year inflation remained moderate in the first half of 2012 at 2.2%. Domestic prices are expected to increase during the year as rising incomes boost domestic demand. Planned salary increases will have inflationary effects for the rest of the year but should be offset by the central bank having maintained the refinancing rate. In addition, the continuing depreciation of the euro against the local currency will blunt inflationary pressure from imports, as the euro area accounts for 65% of trade turnover. The Update revises the ADO 2012 inflation forecast down to 6.5% in 2012 and 6.0% in 2013.

The current account will remain in surplus throughout the forecast period. However, funding to develop oil and gas fields and construct oil refineries will come mainly from foreign direct investment. This will narrow the current account surplus, especially during the second phase of the Shahdeniz gas project. The Update therefore revises the ADO 2012 forecast for the current account surplus in 2012 down to 18.0% of GDP, and in 2013 to 17.0%.

The four Central Asian countries with GDP growth revised downward are Azerbaijan, Kazakhstan, the Kyrgyz Republic, and Turkmenistan. Revision largely reflects weaker growth in two of the subregion’s main trading partners—the euro area and the People’s Republic of China (PRC)—causing energy-exporting Azerbaijan and Kazakhstan to export less oil in the first half of 2012. Weaknesses in international economic conditions and a severe drought have affected prospects for Central Asia, in particular for Azerbaijan, Kazakhstan, and Turkmenistan. Projected growth in 2012 for the subregion as a whole has therefore been revised down from 6.1% in the ADO 2012 to 5.7% The Update lowers Azerbaijan’s projected surplus in both years because of slower oil production and a widening services deficit as foreign direct investment in the hydrocarbons sector spurs imports of services.

It is reminded, here, Government of Azerbaijan (GoA) has adjusted its previous official forecast of 5.7 % GDP growth in 2012 to 2.5 % right away after CESD announced its survey results on Monday this week. The report came from Azerbaijani Cabinet Ministers on September, 26, 2012. In fact, GoA adjustment was based on CESD survey findings announced couple days ago. Hence, GoA failed to achieve economic growth forecast for 2012. Meanwhile, the State Statistical Committee reports that production in non-oil sector grew by 7.9%, while production in oil sector dropped 5.4%. GDP increased only 1,3 % in this period. The CESD survey results show that GDP increased 0,7 % in the first eight month of 2012 since growth in non-oil sector was 6,1 %.

The CESD also forecasts 5.2 % growth in the non-oil sector while the Azerbaijan government still targets 9.0 % growth in 2011. CESD reports that the inflation rate in Azerbaijan is expected to be 9.5 %, which scheduled only 6.0 % by the Government of Azerbaijan earlier in the year.

It is reminded here, that Azerbaijani Cabinet Ministers submitted the Draft Law on the State Budget and the Consolidated Budget for 2013 and next 3 years, the Socio-Economic Development Concept 2013 and next 3 years and forecast figures to the President. The Cabinet informs that the budget package was presented to the heads of the state with economic growth forecast for 2013 at the level of 8.5%.

“The non-oil sector, where GDP can grow in the range of 15-20% will ensure the basis of economic growth. At the same time, the oil sector which was at the peak of the recession for a couple of years will return to economic growth,” the Cabinet said.. “The forecast says that foreign investment will remain at the level of the current year, and the total investment will increase due to an increase in domestic investment. Increase in state investment is going to continue,” the source added.

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