The economy expanded by 2.8% year on year in real terms in January-May 2014, according to preliminary figures released by the State Statistical Committee (SSC).
Initial SSC GDP figures are released only a few weeks after the end of the assessment period and should be treated with caution. Nevertheless, they continue to point to a slowdown in the Azerbaijani economy since the start of the year. Growth in January-May 2014 (SSC GDP figures are only released on a year-to-date basis) was significantly down compared with the same period of 2014, when growth stood at 4.5%.
Weak growth is partly a result of enduring weakness in the extractive sector, which declined by 2.8% year on year over the period. Oil extraction was down 2.1% owing to repair work at platforms at the giant Azeri-Chirag-Guneshli (ACG) field. The weak performance of the extractive sector deducted 1.2 percentage points from headline growth.
The non-oil sector as a whole grew by 8.3% year on year in January-May. However, around half of this was accounted for by construction, while the small manufacturing sector declined by 2.4% - a worrying development for the country as it seeks to diversify its economy.
Growth in construction has also slowed following a rapid boom in 2013 when the sector expanded by over 30%, accounting for over half of headline GDP growth. Nevertheless the sector expanded by a still high 17.3% in January-May 2014 year on year, in line with the long-term trend over the past decade.
The sector has benefited from large investment in the run-up to the 2015 European Games, to which the government has allocated US$1.275bn, or 5% of the total state budget. Whether this investment has made a productive contribution to Azerbaijan's capital stock, however, is unclear.
The completion of repair work at the ACG field may see a modest recovery in growth in the second half of the year. However, lower public spending and a slowdown in lending to the private sector will continue to weigh on domestic demand. As a result, we continue to expect that real GDP growth will come in below the government's 5.8% target, and will also be lower than the IMF's 5% forecast.
(Economic Intelligence Unit)
Bakudaily.az
