Macroeconomic Forecast Azerbaijan

In an economy experiencing GDP growth as dramatic as that in Azerbaijan, there is always a risk that inflation will follow a similar upward surge. Latest data suggest that annual consumer price growth measured 5.4% in 2005, a significant deceleration from 2004 (10.4%), though this does not represent a long-term trend. Renewed price pressures are expected as rapidly rising incomes encourage greater consumption among households, whilst vast inflows of petro-dollars enable increases in public expenditure. Moreover, the redenomination of the manat at the start of 2006 (1 new manat = 5,000 old manats) has caused some confusion, with several examples of private businesses rounding up too high. Whilst we do not expect this to cause a major spike in consumer prices, we do forecast inflation to reach nearly 10% in 2006. Looking further ahead, as GDP growth subsides from its current rate, demand pressures will ease somewhat and inflation should begin to moderate

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