ING sees potential for economic growth in Azerbaijan to recover to 2.5-3% in 2026

ING Group, the Netherlands' largest banking group, forecasts Azerbaijan's economic growth at 1.5% in 2025 and 2.8% in 2026, Report informs referring to ING.

Compared to previous forecasts, the GDP growth rate for the current year has been reduced by 0.8 percentage points and increased by 0.3 percentage points for 2026.

Thus, the country's average annual GDP growth in 2025-2026 is projected at 2.15%.

According to the bank's forecasts, nominal GDP will reach $79.6 billion this year and $81.3 billion next year.

"We downgrade the near-term outlook for Azerbaijan's GDP, budget, external balance and CPI based on 1H25 performance. The country's financial position remains solid, underpinned by substantial sovereign assets and prudent fiscal management. The sovereign rating upgrade from Moody's to investment-grade Baa3 is potentially positive for portfolio inflows. Nevertheless, the risk of the current account turning negative next year remains high, in our view, keeping FX stability in focus as oil prices and export volumes face headwinds," reads the bank's update.

"The slowdown in GDP growth this year, following a strong 4.1% increase in 2024, was not unexpected, but the scale of the deceleration has exceeded earlier projections. Both oil and non-oil sectors – including transport, construction and other industries – came under pressure in 1Q25, with only a partial recovery in 2Q25. According to the State Statistical Committee, preliminary monthly GDP data for July–August indicates a further loss of momentum, with industrial output and services activity both moderating. In the longer run, the fuel sector remains the main drag on growth, while non fuel sectors have shown resilience but are not immune to the broader slowdown."

"Consumption fundamentals are still positive and there seems to be higher reliance on income growth versus a previous focus on leverage, which is positive. Household consumption remains supported by rising real wages and stable employment, with the latest labour market data showing a modest uptick in average monthly earnings. The shift from credit-driven to income-driven consumption is evident in the slowdown of retail lending growth, which has tempered household debt accumulation.

The mood in the corporate sector has stabilised, with business sentiment surveys indicating cautious optimism in non-oil industries. However, the fuel sector, with the exception of the most recent months, is weighing on overall industrial growth, and the recent moderation in corporate lending suggests that investment appetite remains subdued. We have therefore downgraded our GDP growth expectations from 3.0% to 1.5% for 2025 but still see scope for a recovery to 2.5–3.0% next year if external conditions improve and public investment accelerates," reads the update.

According to the Azerbaijani Ministry of Economy's forecast, GDP growth is expected at 3% in 2025, 2.9% in 2026, and 3.6% in 2027.

Forecasts from international rating agencies vary: S&P Global expects growth in 2025-2026 at 2% per year, Fitch Ratings at 3.5% in 2025 and 2.5% in 2026, and Moody's at 2.5%.

The International Monetary Fund forecasts growth of 3.5% and 2.5% for 2025-2026, respectively, while the European Bank for Reconstruction and Development forecasts 3% in 2025 and 2.5% in 2026. The Asian Development Bank forecasts growth of 2.4% and 2% over the next two years, respectively. The World Bank expects economic growth in Azerbaijan at 2.6% in 2025 and 2.4% in 2026.

In 2024, Azerbaijan's economy grew by 4.1%, and in January-August 2025 by 1%.