Azerbaijan is among the countries that have relatively benefited from the recent escalation in the Middle East, but this advantage is driven mainly by prices rather than volumes, APA-Economics reports, citing ING Group, the largest financial group in the Netherlands.
It was noted that as an exporting country, every $10 per barrel increase in oil prices raises Azerbaijan’s annual exports by approximately $3 billion (4% of GDP) and generates an additional $1.5–2.0 billion in budget revenues.
“Against this backdrop, we no longer see risks of a negative current account balance or a break in the manat’s exchange rate peg in 2026–2027,” ING said.
According to analysts, direct proximity to Iran may increase defense and security spending in Azerbaijan. Nevertheless, the country’s fiscal position remains strong. “In 2025, the consolidated budget surplus amounted to 2.6% of GDP, while sovereign savings exceeded 100% of GDP,” the report noted.
At the same time, inflation risks remain elevated. Approximately 46% of Azerbaijan’s imports come from developed markets and regions affected by tensions in the Middle East, making the economy vulnerable to imported inflation. A 10% increase in global food prices could raise inflation by about 1.5 percentage points. For this reason, it is noted that there is no additional room for further monetary easing.
According to the report, economic growth slowed from 4.2% in 2024 to 1.4% in 2025, exceeding expectations. Both the oil and non-oil sectors, including transport and industry, came under pressure. The non-oil sector showed weak dynamics, while production in the oil sector was volatile. Consumption-driven sectors remained relatively resilient, partially offsetting the overall slowdown.
Although the slowdown in 2025 was broad-based, the construction and trade sectors remained relatively strong. ING believes that if fiscal policy is not tightened and trade relations with the U.S., the EU, and China develop further, GDP growth could return to the 2–3% range in 2026–2027. However, growth potential in the oil sector remains limited due to production capacity constraints.
At the same time, household consumption is increasingly relying on credit amid weak income growth. Although real incomes are rising, this increase does not fully support consumption. As a result, the volume of retail loans has reached 15% of GDP, and the real growth rate has slowed to 5%, hitting a multi-year low.
“Some signs of improvement are observed in business sentiment outside the oil sector. The oil sector—except for short-term growth in recent months—continues to negatively impact industrial growth. At the same time, the stabilization of corporate lending growth and the relatively high level of the industrial confidence index indicate that investment activity in non-oil sectors may recover,” the report noted.
