Azerbaijan's economic recovery will be sluggish in the coming yearson the back of relatively subdued oil prices and a banking sector stillunder significant pressure from the manat's devaluation in 2015.
We forecast real GDP growth of 0.3% in 2017 and 1.2% in 2018,following a contraction of 3.1% in 2016. Long-term growth will remaintepid, averaging 3.8% over our forecast period to 2026.
The default of the country's largest lender, the International Bankof Azerbaijan (IBA), will tarnish the country's reputation amonginternational investors.
Despite relatively low oil prices, public finances will remain healthyon the back of sovereign wealth fund reserves of over 92.0% ofGDP.
The Central Bank of the Republic of Azerbaijan will continue interveningin the exchange rate, keeping the manat relatively stable overthe coming years.
The government's plan to diversify the economy is unlikely to befruitful, which will weigh on economic growth as Azerbaijan's oilproduction is in long-term decline.
Azerbaijan's political environment is unlikely to change, after PresidentIlham Aliyev further consolidated his and his family's powers througha constitutional referendum in late 2016, extending his presidentialterm to seven years and appointing his wife as vice-president.