THE FORECASTS ARE CONFIRMED

Azerbaijan's economy is set to continue stable growth in the coming year too, in spite of the drop in oil prices on the world markets and far from optimistic predictions on that count. According to the concept for economic and social development drawn up by the Ministry of Economy and Industry and the forecasts for 2016 and the subsequent three years, next year the country's GDP will be 57.7bn manats, 82.2 per cent of which will be produced in the private sector. The actual economic growth will be 1.8 per cent; the non-oil sector will increase by 3.4 per cent and the petroleum sector by 1.7 per cent.

A downward curve

The stagnation of the world economy is already a reality. Both the International Monetary Fund [IMF] and the World Bank [WB] believe that the low prices will continue until the end of this year and on the whole energy-bearing products will become 39 per cent cheaper compared with the previous year. Everywhere the original forecasts for the current year have undergone changes, tending to a downwards spiral. For example, the International Monetary Fund believes that the growth in the world economy will be 3.3 per cent instead of the 3.5 per cent predicted for 2015 and 3.8 per cent instead of the 3.9 per cent predicted for 2016. In the Eurozone countries this figure will be considerably lower - 1.7 per cent, in the CIS [Commonwealth of Independent States] countries only 0.3 per cent, which is in the main connected with the decline in the Russian Federation economy.

The Organisation of Economic Cooperation and Development (OECD) has also downgraded its forecast for the world economy for the next two years. Now it is predicted that, based on the results for 2015, the rise in global GDP will be 3 per cent as opposed to the June forecast of 3.1 per cent, while in 2016 it will be 3.6 per cent compared with the earlier forecast of 3.8 per cent.

The Chinese economy's growth rates are slowing down to 6.7 per cent and 6.5 per cent next year compared with a 7.4-per-cent growth in 2014, the OECD states in its report.

Over the last few months, the forecast for the world economy has been downgraded somewhat and has become less certain since events in China are outweighing the improvements in the situation in the USA. The economic decline in the People's Republic of China is regarded as the main risk factor for the world economy. In the OECD they believe that the likelihood of an improvement in the world economy remains lower than it should for 2015, that a certain amount of consolidation is predicted for 2016, but there are still some doubts about the potential for growth in the future.

Naturally, the world-wide processes cannot fail to have an impact on the domestic economic situation in Azerbaijan. Taking into account the geopolitical tension in the region which is affecting economic processes, the government is expecting a drop not only in the amounts of state revenues, but also in the profits from the private sector which will result in an economic slowdown in business activity and undermine the stability of the country's financial and banking sector. 

Thus, judging by the renewed forecasts of the Ministry of Economy and Industry, in 2015 the volume of the country's GDP will be 57.2bn manats with a growth of 3.3 per cent, while 4.4 per cent had previously been forecast, whereas the growth in the oil sector will be 0.6 per cent (earlier 1.6 per cent) and 5.9 per cent (earlier 8.5 per cent) in the non-oil sector. The forecasts for investments in the main capital are 19.7bn manats (a drop of 6.2 per cent in domestic investments and a growth of 49 per cent in foreign investments).

We would like to note that, according to the "Asian Development Outlook" report published by the Asian Development Bank (ADB) a few days ago, the forecast for Azerbaijan's economic growth in 2015 remains at 3 per cent. In the first six months of 2015 Azerbaijan's economy grew by 5.7 per cent, while in 2014 this figure was 2.1 per cent, the report says. ADB analysts believe that the state investment programme remains the main source of economic growth and employment in the country.

The document also notes that the treasury revenues are feeling the pressure of low oil prices. In spite of the low oil price, oil production in the first six months of 2015 rose by 1.3 per cent compared with the 3.9-per-cent drop registered in January to June 2014, the document states. In the opinion of the bank's analysts, in spite of a reduction in treasury revenues, the country's 2015 fiscal policy aimed at propping up the economy remains an expansionist one.

Low inflation

As far as the forecasts for 2016 are concerned, considering that they have been compiled on the basis of average oil prices of 50 dollars per barrel and all the above-mentioned factors that are having a negative impact on the economic situation, a reduction in the growth rates is only to be expected here. At the same time, the government feels certain that in 2019 the growth in GDP will reach 5 per cent (in 2017 - 2.6 per cent, in 2018 - 3.6 per cent) mainly due to the increase in the non-oil sector's input. On the whole, it is planned to increase the share of the non-oil sector in GDP and treasury revenues in 2016-2019, to create financial provision for boosting the level of industrial production and setting up enterprises in the non-oil sector, it states in the Concept for Economic and Social Development states. The main priority in developing the non-oil sector is to develop offshoots which will be competitive on the world market.

"State support for the production of non-oil products will be stepped up, new enterprises will be set up and the existing ones will be upgraded," it notes in the draft concept. Particular attention will be paid to setting up enterprises to process natural resources and agricultural produce.

It needs to be said that Azerbaijan is one of the four countries of Central Asia (including Georgia, Kyrgyzstan and Uzbekistan), in which the forecast for GDP growth has remained unchanged compared with the previous forecast in the above-mentioned ADB report (according to the bank it will be 2.8 per cent). In the remaining countries the bank is predicting a drop in economic growth rates. For example, GDP growth in Armenia in 2015 and 2016 is forecast to be 1.2 per cent and 2 per cent respectively, while in the last forecast these figures were 1.6 per cent and 2.3 per cent.

Another important figure, that of average annual inflation, will remain low in Azerbaijan in 2016 as well (at 3.3 per cent). Moreover, according to government forecasts, in 2016 the average monthly wage in Azerbaijan is forecast to be 474.5 manats. Against the backdrop of economic decline, the population's nominal monetary incomes will grow by 1.2 per cent to 43.8bn manats, while their outgoings will rise by 0.6 per cent to 34.4bn manats.

In the view of ADB analysts, the actions of Azerbaijan's Central Bank (CBA) to lower the liquidity of the local currency have helped to keep inflation down. The ADB analysts believe that the devaluation of the manat on 21 February in Azerbaijan is continuing to exercise inflationary pressure on imports of non-perishable goods. The average level of inflation in Central Asia, with which the bank usually associates Azerbai-jan, is expected to be 8.1 per cent in 2015 and 7.5 per cent in 2016.

"The price controls introduced on goods after the devaluation in the Central Asian countries in 2014 and 2015 have helped to restrain galloping inflation," the report says.

In short, in spite of certain negative indices, in 2016 Azerbaijan's economy will be able "to stay on its feet" and, most importantly, will manage to keep stable those indices directly affecting the wellbeing of the country's population.