Fitch sees 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 likely to strengthen purchasing power. The unemployment rate is expected to remain at around 5.2 percent, while rising real wages will provide additional impetus.

The oil sector, on the other hand, remains vulnerable. Lower world 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, while total production declined by 2.6 percent. At the same time, the non-oil sector grew by an impressive 8.6 percent – an indication of gradual diversification.

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

Cautious monetary policy, stable manat

Fitch expects the central bank to maintain its cautious stance. Inflation is expected 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 exchange rate of the manat is expected to remain close to 1.70 AZN per US dollar. This signals the government's continued commitment to exchange rate stability.

However, risks remain: geopolitical tensions, possible new sanctions against Russia, and disruptions to global supply chains could fuel inflation again. Azerbaijan imports a significant portion of its agricultural products from Russia and is therefore vulnerable to price and transport cost increases.

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 expected to grow at double-digit rates and account for more than 57 percent of total revenues.

Transfers from the state oil fund SOFAZ to the budget are expected to fall by 11 percent. The budget deficit is estimated at 1.9 percent of GDP, roughly the same level as in 2025. Given the uncertainties in the energy markets, revenue and expenditure growth is likely to remain limited to around 0.7 percent. Defense spending is expected to remain high.

Geostrategic perspectives

Investors are showing increasing interest 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 US involvement in the region, the project could strengthen Azerbaijan's role as a transit hub.

Fitch sees parallel initiatives in the areas of energy, logistics, and transport infrastructure 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.