ING Group: Azerbaijan Could Lose 2% GDP Due to Declining Oil Prices
Updated Economic Forecasts for Azerbaijan and CIS-4 Countries Amid Oil Price Fluctuations
According to the latest forecasts from the ING Group, a leading banking institution in the Netherlands, Azerbaijan’s economy significantly relies on oil prices, with every dollar increase in the average annual oil price translating to approximately $300 million in export earnings and $150 million in government revenues. This highlights the country’s vulnerability to fluctuations in global oil prices, especially given recent declines in those prices.
The ING Group has revised its economic forecasts for the CIS-4 nations—Azerbaijan, Armenia, Kazakhstan, and Uzbekistan—taking into account the prevailing global economic challenges. The report warns that a reduction in the average oil price by $5 in 2025 and $11 in 2026 could result in Azerbaijan’s economy suffering losses equivalent to 2% of its GDP over two years.
Kazakhstan, another oil-dependent economy, is also expected to face adversity with similar price cuts, predicting a rise in its budget and current account deficits by 0.3-0.6 percentage points of GDP. Impressively, for Kazakhstan, each dollar of oil price contributes about $550 million in export revenues and $150 million in fiscal revenues.
In a contrasting situation, Armenia’s economy could benefit from higher gold prices alongside lower oil prices, as this is projected to improve its current account trajectory significantly. However, the report notes that Armenia’s small economy and distinctive regional risks may limit its ability to capitalize fully on these potential advantages.
Uzbekistan, meanwhile, appears to be on a positive trajectory due to strong gold prices, with a notable uptick in gold sales observed recently. The increased gold exports, with projections estimating receipts to rise from $7.5 billion in 2024 to between $9.5 billion and $10 billion in 2025, are buffering the economy against the impacts of declining oil revenues.
Global trade tensions are also impacting the region. ING analysts caution that while the CIS-4 nations might have limited direct exposure to the US market, they could still face cascading effects through indirect channels, including heightened inflationary pressures and fluctuations in commodity prices.
The ongoing inflationary environment has led central banks across Azerbaijan, Kazakhstan, Uzbekistan, and Armenia to maintain key interest rates despite initial expectations for cuts. Consequently, inflation forecasts for each of these countries have been raised by 0.5-1 percentage points. Notably, the currencies of these nations have not benefitted from the depreciation of the US dollar, indicating a lack of investor confidence amid global uncertainties.
As for Azerbaijan, the bank now forecasts an economic growth rate of 2.5% for both 2025 and 2026, a slight adjustment from the previous estimate of 3%. Inflation rates are anticipated to stabilize around 5.1% for both years.
In summary, while fluctuations in oil prices pose significant risks to Azerbaijan and Kazakhstan, the other CIS-4 nations could see mixed impacts, revealing both vulnerabilities and opportunities depending on their unique economic structures and external market conditions.
