Azerbaijan expects economy to shrink 2.8% in 2016

PanARMENIAN.Net - Azerbaijan said on Friday, October 21 its economy would contract by 2.8% this year, dramatically revising down its previous forecast, which was for gross domestic product to grow 1.8% in 2016, Reuters reports.

The government's optimistic forecast had been out of step with international financial organisations, which were predicting a sharp slowdown because of the effect of low world prices for oil and gas, Azerbaijan's main exports.

The Azeri economy ministry, in a written response to Reuters questions, said difficult economic and geopolitical processes, as well as weakening currencies in countries with which Azerbaijan trades, had a negative impact on the economy.

"That's why this forecast (of 1.8%) has been revised and a contraction of 2.8% is now projected by the end of 2016," the ministry said in its emailed comments.

Explaining the need for the revision, the ministry said: "The growth at 1.8 percent was projected in 2015, when the International Monetary Fund had been projecting the oil price at $64 per barrel."

Azeri Light, the grade of crude oil produced by Azerbaijan, traded at $52.07 a barrel as of close of trade on Thursday.

Oil and gas account for about 75% of state revenues and 45% of gross domestic product, so the slump in crude prices since mid-2014 has hit the economy hard.

Azerbaijan has so far responded by cutting the base oil price assumed in the budget for this year to $25 per barrel, and moved the currency into a managed float, easing pressure on foreign exchange reserves.

The IMF predicts Azeri GDP will fall 2.4% this year while the European Bank for Reconstruction and Development sees a 3% contraction.