Outlook for 2011-15

• The Economist Intelligence Unit expects the incumbent president, Ilham Aliyev, to face a more testing second term in office, as slower economic growth will raise the risk of social protests.
• Competition will intensify between the EU and Russia for Azerbaijani energy resources during the forecast period. Azerbaijan will play off these competing interests against each other to secure political advantage.
• The economy is forecast to grow at an annual average of 4.5% in 2011-15, down from an average of 16.4% in 2006-10. Slower expansion in oil production in the coming years will act as a considerable drag on growth.
• Annual average inflation rose to 5.7% in 2010, from 1.5% in 2009. Annual average inflation will stay in single digits in 2011-15, but consumer demand growth will exert inflationary pressures in the later part of the forecast period.
• The manat will remain largely stable in nominal terms against the US dollar in 2011. The manat will resume an appreciating trend against the US dollar from 2012 onwards as capital inflows rise.
• The current account will remain firmly in surplus in 2011-15, averaging 19% of GDP. High oil exports will continue to be the main driver of the substantial trade surplus.

Monthly review

• In late May Mr Aliyev pardoned 90 prisoners, including Eynulla Fatullayev, a well known journalist and political prisoner. The international community and human rights organisations welcomed the decision.
• Azerbaijan joined the Non-Aligned Movement (NAM) in May, hoping that the body may help to solve its dispute with Armenia over Nagorny Karabakh.
• The government amended its budget projection for 2011, and now targets revenue of Manat15.55bn and expenditure of Manat15.94bn. The authorities said that higher than expected global oil prices were behind the alteration.
• The Central Bank of the Azerbaijan Republic raised the refinancing rate by 0.25 percentage points at the start of May, to 5.25%. The Central Bank is concerned by the recent surge of inflationary pressures.
• Real GDP grew by 0.8% year on year in January-April. The non-oil sector expanded by 6.2% year on year; the oil sector, which was previously the main driver of growth, contracted by 4%.
• The trade surplus rose to almost US$3.6bn in the first quarter. Imports grew by 63.3% year on year, outpacing export growth. However, exports exceeded imports in value terms.