Fitch Forecasts Moderate Growth for Baku

Azerbaijan’s economy is expected to grow moderately in 2026. Fitch Solutions forecasts growth of 2.5 percent, following an estimated 1.4 percent in 2025. The upturn is expected to be driven primarily by domestic demand, while the oil sector remains under pressure.

According to analysts, private consumption in particular will drive growth. Falling inflation and a stable labor market are expected to strengthen purchasing power. The unemployment rate is projected to remain at around 5.2 percent, while rising real wages will provide additional momentum.

The oil sector, however, remains vulnerable. Lower global market prices and declining production are weighing on the industry. In December 2025, the oil sector accounted for 47.4 percent of gross domestic product, while the non-oil sector accounted for 52.7 percent. Oil production fell by 7.3 percent, and total production by 2.6 percent. At the same time, the non-oil sector grew by a remarkable 8.6 percent—a sign of gradual diversification.

New trade and investment agreements with China, Germany, Turkey, and other European partners could further support this trend.

Prudent monetary policy, stable manat

Fitch expects the central bank to maintain its cautious stance. Inflation is projected to fall to 5.0 percent by the end of 2026—down from 5.6 percent in 2025—and thus remain within the target range of two to six percent. The key interest rate is likely to be gradually lowered from the current 6.50 percent to 6.00 percent.

The manat’s exchange rate is expected to remain closely pegged at 1.70 AZN per U.S. dollar. This signals the government’s continued commitment to exchange rate stability.

Risks remain, however: Geopolitical tensions, potential new sanctions against Russia, and disruptions to global supply chains could reignite inflation. Azerbaijan imports a significant portion of its agricultural products from Russia and is therefore vulnerable to increases in prices and transportation costs.

Conservative Fiscal Policy

Fitch also expects fiscal restraint. The government is likely to maintain a conservative course in 2026 and further reduce its dependence on oil revenues. Non-oil revenues are projected to grow at a double-digit rate and account for more than 57 percent of total revenues.

Transfers from the state oil fund SOFAZ to the budget are expected to decline by 11 percent. The budget deficit is projected at 1.9 percent of GDP—roughly on par with 2025 levels. Given the uncertainties in the energy markets, growth in revenues and expenditures is expected to remain limited to around 0.7 percent. Defense spending is expected to remain high.

Geostrategic Outlook

Investor interest is growing in the planned TRIPP corridor, which is intended to connect Azerbaijan’s heartland with Nakhchivan via Armenian territory. In the wake of the preliminary peace agreement with Armenia and greater U.S. engagement in the region, the project could strengthen Azerbaijan’s role as a transit hub.

Fitch sees parallel initiatives in the energy, logistics, and transportation infrastructure sectors as an opportunity to further expand Baku’s strategic importance—despite structural risks in the oil sector.

This article was produced in cooperation with our partner bne intelliNews