There are a number of reasons to be cautious about the official growth figures. The oil sector, which last year accounted for around half of GDP, expanded by 3.4% in the first quarter, although oil output volumes rose by only 1.8% year on year over the same period. This implies significant growth in real investment in the sector, which seems unlikely given the sharp fall in global oil prices in the second half of 2014.

According to official figures, the non-oil sector expanded by 7% year on year in the first quarter. This marked an acceleration in growth from January-February, despite the sharp devaluation of the manat against the US dollar on February 21st. Although this will have sharpened the export competitiveness of parts of the small non-oil sector, in the short term it has also undermined business and consumer confidence. It is possible that, as was the case in Russia in December 2014, the devaluation has given a short-term boost to household spending, as consumers brought forward purchases before goods were re-priced. If so, we would expect non-oil GDP growth rates to contract sharply in the coming months as prices rise and consumers cut back on non-essential spending.

A comparison of the nominal and real growth rates of the non-oil sector also casts doubt on the SSC's inflation figures. According to the official data, the year-on-year consumer price index (CPI) rose by 2.8% in January-March. By contrast, non-oil GDP increased by 20% year on year over the same period. If we accept that the real non-oil growth rate was 7% year on year, this would imply a rise in prices for the non-oil sector of over 12%. Although we would not expect the non-oil sector deflator to be perfectly aligned with the CPI, the wide disparity between the figures suggests that the official CPI figure may be too low.

(Economist Intelligence Unit)