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Azerbaijan Country Risk Report Q2 2019

Azerbaijan Country Risk Report Q2 2019

Key View:

Azerbaijan's economy began its gradual recovery in 2017, and we expect this modest pick-up to continue over the coming quarters due to an expansion in natural gas production, coupled with a rise in investment in the non-oil sector due to the government's improved ability to spend as oil prices rise gradually. Therefore, we forecasting real GDP growth to rise to 0.8% in 2018 (compared with 0.1% in 2017) and 1.3% in 2019.

However, the government's plan to significantly diversify the economy will not bear significant fruit due to a lack of structural reform momentum. Long-term growth will thus remain tepid relative to historic trends, averaging 3.9% over our forecast period to 2028.

Despite relatively low oil prices, public finances will remain stable on the back of sovereign wealth fund reserves of over 92.0% of GDP.

We continue to expect Azerbaijan's political outlook to be weak, which is reflected in our short- and long-term political risk scores of 62.9 and 49.8 (out of 100) respectively. The ongoing dispute with neighbouring Armenia regarding the Nagorno-Karabakh region will continue to pose the largest threat to Azerbaijan's external security. President Ilham Aliyev's strong grip on power will likely ensure policy continuity, but will come at the long-term expense of democracy and economic development.

Key Risks

A major downside risk stems from another oil price crash, resulting in deteriorating public finances and further cuts in capital expenditure. This would halt Azerbaijan's economic recovery and likely cause another recession.

The banking sector remains weak, and continued weakness could weigh significantly on credit growth and economic activity.

Escalating tensions with neighbouring Armenia can quickly result in an all-out war between the countries.Azerbaijan Country Risk


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Azerbaijan's Growth Recovery To Be Modest Given Vulnerabilities To Negative Oil Shock
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
TABLE: GDP GROWTH FORECASTS
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
10-Year Forecast
The Azerbaijani Economy To 2028
Relatively Weak Growth Up To 2028
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Azerbaijan's Political Outlook To Face Continued Border Uncertainties
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Azerbaijan Long-Term Political Outlook – Everything Hinges On Nagorno-Karabakh
Azerbaijan Country Risk Q2 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report is solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsOperational Risk
TABLE: OPERATIONAL RISK
Conflict Risk
TABLE: MAIN ACTIVE TERRORIST GROUPS
TABLE: POLITICAL VIOLENCE RISK
TABLE: MAJOR CONFLICT FLASHPOINTS
TABLE: BUSINESS RESPONSE TO CONFLICT RISK
Transport Network
TABLE: ROAD RISKS
TABLE: RAIL RISKS
TABLE: PORTS AND INLAND WATERWAYS RISKS
TABLE: AIR TRANSPORT RISKS
Global Macro Outlook
Volatility Feeding Into Slower Growth
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: AZERBAIJAN – MACROECONOMIC DATA AND FORECASTS

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