30.05.2026
Azerbaijan’s economy slowed sharply in 2025 as technical issues reduced oil production and non-oil growth moderated after several strong years. Growth is expected to recover only modestly in 2026–2027, supported by somewhat stronger non-oil activity, higher hydrocarbon prices and continued reconstruction spending, but declining crude oil output will continue to limit overall performance. Inflation is projected to remain within or close to the Central Bank of Azerbaijan’s target band, although higher food and import prices create risks. Fiscal and external positions remain in surplus thanks to hydrocarbon revenues and large sovereign assets, but the medium-term challenge is to preserve oil wealth while accelerating diversification.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 1.4 | 2.0 | 1.8 |
| Inflation (%, yoy) | 5.5 | 5.8 | 4.6 |
| Employment rate (% of working-age population, 15+) | 59.4 | 59.4 | 59.4 |
| Fiscal balance (% of GDP) | 2.6 | 5.0 | 2.5 |
| Gross public debt (% of GDP) | 22.2 | 22.6 | 23.7 |
| Current account balance (% of GDP) | 4.4 | 7.7 | 2.4 |
Growth recovers only modestly
Azerbaijan’s real GDP growth slowed to 1.4% in 2025, down from 4.1% in 2024. The slowdown reflected a contraction in hydrocarbon output, technical problems in oil production and weaker non-oil growth. Non-hydrocarbon growth moderated as investment slowed after several years of elevated spending.
Growth is projected to rise to 2.0% in 2026 before easing to 1.8% in 2027. The modest recovery reflects a less severe decline in crude oil output, stronger non-oil consumption and the positive impact of higher hydrocarbon prices on confidence. However, the structural decline in oil production and subdued investment will continue to limit medium-term growth.
Non-oil activity remains the key diversification challenge
The non-oil sector remains central to Azerbaijan’s medium-term outlook. Services, construction, transport, logistics and reconstruction-related activity should continue to support growth, while possible progress in regional connectivity with Armenia could improve trade and investment prospects.
However, diversification remains incomplete. The economy still depends heavily on hydrocarbon revenues, SOFAZ transfers and public investment. Limited private-sector dynamism, state-owned enterprise dominance, weak competition and investment constraints continue to weigh on productivity and job creation.
Inflation remains manageable but risks have increased
Inflation rose to 5.5% in 2025, driven mainly by food prices and regulated-price adjustments. It is projected to increase slightly to 5.8% in 2026 before declining to 4.6% in 2027. This keeps inflation close to the Central Bank’s target band, but risks remain tilted upward.
Higher global food and energy prices, transport costs, import-price pressures and regional uncertainty could keep inflation elevated for longer. At the same time, subdued domestic demand and the stable manat exchange-rate framework should help contain broader price pressures.
Fiscal position remains in surplus
Azerbaijan’s consolidated fiscal surplus narrowed to 2.6% of GDP in 2025 as hydrocarbon revenues weakened and capital spending declined. The surplus is projected to widen to 5.0% of GDP in 2026 due to higher hydrocarbon prices, before narrowing again to 2.5% in 2027 as oil and gas revenues moderate.
Public debt remains low, at about 22%–24% of GDP over the forecast horizon. This gives Azerbaijan substantial fiscal space, especially given the very large assets of the State Oil Fund. However, long-term fiscal sustainability depends on saving hydrocarbon windfalls, improving non-oil revenue mobilisation and reducing dependence on oil-related transfers.
External position remains strong but hydrocarbon-dependent
The current account surplus narrowed to 4.4% of GDP in 2025, reflecting lower hydrocarbon exports and weaker oil and gas prices. It is projected to rise to 7.7% in 2026, supported by higher hydrocarbon prices, before narrowing to 2.4% in 2027 as energy prices decline and oil output remains under pressure.
Azerbaijan’s external buffers are very large, supported by Central Bank reserves and SOFAZ assets. However, the external position remains heavily dependent on hydrocarbons. Lower oil and gas prices, faster decline in production, weaker regional demand or delays in diversification would quickly reduce external surpluses.
Overall outlook
Azerbaijan’s outlook remains stable, but growth is expected to stay modest in 2026–2027. Strong fiscal and external buffers provide resilience, while inflation should remain manageable. The main medium-term challenge is structural: declining oil production makes diversification more urgent. Sustained progress will depend on private-sector development, stronger competition, state-owned enterprise reform, better governance, non-oil exports and opportunities from regional connectivity.
Sources:
World Bank, Azerbaijan Macro Poverty Outlook, April 2026.
International Monetary Fund, Azerbaijan: 2026 Article IV Consultation, April 2026.
International Monetary Fund, World Economic Outlook, April 2026.
Asian Development Bank, Asian Development Outlook, April 2026: Azerbaijan.
Central Bank of Azerbaijan, Monetary Policy and Inflation Developments, 2025–2026.
State Oil Fund of the Republic of Azerbaijan, Annual and Reserve Data, 2025–2026.
