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WB keeps high mood about Azerbaijan’s economic growth despite falling oil prices

14 January 2015 16:44 (UTC+04:00)
WB keeps high mood about Azerbaijan’s economic growth despite falling oil prices

By Gulgiz Dadashova

The World Bank has improved the outlook for economic growth in Azerbaijan in 2015 despite the recent developments in the global economy due to the plummeting oil prices.

In the January edition of Global Economic Prospects, the Bank noted that Azerbaijan's GDP growth is expected to reach 4.4 percent in 2015 compared to the previous year which stood at 4.1 percent.

The report says that the WB expects growth of Azerbaijani economy by 4.1 percent in 2016, and at 3.8 percent in 2017.

Although Azerbaijan’s economic base remains largely dependent on its energy reserves— over 60 percent of state revenue derives from the export of petroleum, the government achieves successes in private or public sector- resulted from attempts to diversify its economy. Between 2005 and 2010, Azerbaijan reached a growth rate of 18.25 percent - one of the highest in the world. The country’s annual gross domestic product (GDP) per capita rose from $5,400 in 2005 to $10,300 in 2011.

Azerbaijan was listed by the WB as the world’s top economic reformer for, with improvements of seven out of 10 indicators of regulatory reform. Azerbaijan’s extensive reforms moved it far up the ranks, from 97 to 33 in the overall ease of doing business, then.

According to the Bank, the economic growth of countries in Europe and Central Asia (to which the Bank classifies Azerbaijan) will be three percent in 2015, and 3.8 percent in 2016-2017.

In particular, GDP growth is projected at 1.8 percent in Belarus in 2015, 3.3 percent in Armenia, 1.8 percent in Kazakhstan, 5 percent in Georgia, 2 percent in Kyrgyzstan, 2.9 percent in Romania, 2 percent in Hungary, 4.2 percent in Tajikistan, 3.5 percent in Turkey, 2 percent in Estonia, and 3.2 percent in Lithuania and Poland. The GDP is expected to decline in Russia, Ukraine and Serbia to 2.9, 2.3 and 0.5 percent respectively.

The report noted that the tension in relations between Russia and Ukraine, economic sanctions on Russia due to this tension, the probability of prolonged stagnation in the euro area, as well as lower commodity prices remain the key risks for the region.

Long-term growth is constrained by structural factors, including weak business environment and institutions, vulnerability of the banking system in the region, the report said.

“Among energy exporting CIS countries, a slowdown in emerging market trading partners (especially China and Russia) and continued weakness in crude oil and other key commodity prices are expected to reduce growth in 2015, before the onset of a recovery in 2016,” the report noted.

The Bank said the positive balance of payments in Azerbaijan amounted to 12.6 percent of GDP in 2014, while this figure is projected at 9.8 percent in 2015, 8.1 percent in 2016, and 5.3 percent in 2017.

Bank analysts say the painful transition to a market economy and regional political conflicts in the first half of the 1990s of the last century has led to a sharp decline in economic growth in some countries, such as Armenia, Azerbaijan, Georgia, Kyrgyzstan and Moldova. As a consequence, in most of these countries, real per capita income fell to its lowest level.

However, revenue growth later recovered through remittances, which were earning potential in Russia and Europe (Armenia, Kyrgyzstan, and Moldova), and foreign direct investment, which contributed to the reconstruction of the energy sector (Azerbaijan). With the exception of Kyrgyzstan, per capita income in 2005 returned to the average level, the report said.

The International Monetary Fund forecasted in October 2014 that Azerbaijan's GDP growth will stand at 4.5 percent in 2014 and 4.3 percent in 2015. The report also said the economic growth in Azerbaijan is expected to reach 4.2 percent in 2019, while the June report forecasted the country's GDP growth at 4.23 percent in 2019.

Azerbaijan's Social-Economic Development Concept, developed by Economy and Industry Ministry, said the real GDP growth in the country will be equal to 5.2 percent. This figure is predicted to reach 59.4 billion manats in 2015.

Overall, the global growth is expected to rise moderately, to 3.0 percent in 2015, and the average 3.3 percent through 2017. High-income countries are likely to see growth of 2.2 percent in 2015-17, up from 1.8 percent in 2014, on the back of gradually recovering labor markets, ebbing fiscal consolidation, and still-low financing costs.

In developing countries, as the domestic headwinds that held back growth in 2014 ease and the recovery in high-income countries slowly strengthens, growth is projected to gradually accelerate, rising from 4.4 percent in 2014 to 4.8 percent in 2015 and 5.4 percent by 2017.

Lower oil prices will contribute to diverging prospects for oil-exporting and -importing countries, particularly in 2015.

Meanwhile, U.S. Energy Information Administration announced that it does not expect a significant recovery of oil prices on the global markets in 2015.

EIA forecasts that Brent crude oil prices will average $58 per barrel in 2015. The average Brent price is forecasted at $75 per barrel in 2016.

Annual average West Texas Intermediate (WTI) price is expected to be $3 to $4 per barrel below Brent.

“December was the sixth consecutive month when monthly average Brent prices decreased, falling $17 per barrel from November to a monthly average of $62 per barrel, the lowest since May 2009,” EIA’s Short-Term Energy Outlook said.

EIA said the December price decline reflects a continued growth in the U.S.’ tight oil production, stronger global supply, weakening outlooks for the global economy and oil demand growth.

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Follow Gulgiz Dadashova on Twitter: @GulgizD

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