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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2010BAKU STOCK EXCHANGEECONOMIC AND POLITICAL DEVELOPMENTSEconomic PerformanceAzerbaijan has experienced the repercussionsof the global downturn through weaker oilprices and heightened risk aversion towardsemerging markets. In the initial part of ourforecast period, commercial banks willcontinue to face difficulties raising capitalabroad, and access to credit for domesticcompanies and households will be reduced.However, a return to global economic growthin 2010, along with higher oil prices comparedwith 2009, will increase budget revenue, andthe government will also be able to draw onthe State Oil Fund of the Republic ofAzerbaijan (SOFAZ) to help to fund socialspending and infrastructure projects.Although Azerbaijan has felt the effects of theglobal economic downturn, with real GDPgrowth estimated to have slowed from 10.8%in 2008, the effects have been much lesssevere than in other countries in the eastEuropean region. Azerbaijan recorded realGDP growth of 8.3% year on year in January-October 2009, compared with expansion of12.7% in the year-earlier period, when theglobal economic downturn had already begun.Higher oil prices in 2010, compared with 2009,and higher external demand for oil will have apositive impact on the outlook for theeconomy, which is highly dependent on theenergy sector. Real GDP growth is forecast torise to 9.5% in 2010. Lower oil prices in 2011will weigh on the economic outlook, so thatreal GDP is forecast to slow moderately, to9.2%.Average annual consumer price inflationreached 20.8% in 2008, the fastest rate ofgrowth in prices for more than a decade, but isestimated to have decelerated to around 1.7%in 2009. Weaker domestic demand growth andlower international oil prices have reducedexport revenue inflows, lowering inflationarypressures. These factors have been partlyoffset by increased social spending, as theauthorities have sought to alleviate the impactof rising unemployment. Higher fuel andcommodity prices–combined with thecontinuation of higher government spending,increased capital inflows and a rebound indomestic demand–will contribute to a pick-upin the pace of price rises in 2010, to a forecastaverage of 6.6%. Inflation will fall to 6.4% in2011 as global energy prices fall moderately.The manat depreciated slightly against the USdollar in August-October 2008, owing todisruptions to oil exports. The authoritiesappear to have been supporting the currency,as in the first nine months of 2009 the manatwas stable against the US dollar, at aroundManat0.8:US$1, even though oil prices werelower than in 2008. In 2010-11 oil and gasexport volumes are expected to rise comparedwith 2009, but global energy prices will remainconsiderably lower than in 2008. Nonetheless,a modest increase in export revenue isexpected over the forecast period. Spendingon imports will pick up in 2010-11 as investorsincrease capital outlays, albeit at a slower ratethan in 2008. In addition, refurbishment ofinfrastructure will require imports of machineryand equipment, although expenditure onimported consumer goods will be lower than inrecent years, owing to reduced access tocredit. Services debits for the hydrocarbonssector, on activities such as consultancy andgeological services, will moderate, as foreigninvestors seek to reduce costs in response tothe impact on firm's revenue of the globaleconomic recession in 2009. This will lead to anarrowing of the deficits on the services andincome accounts compared with 2008. Afterfalling to an estimated US$7.2bn in 2009(equal to 13.4% of GDP), the current-accountsurplus will rise to around US$12.3bn in 2010(19.3% of GDP). A moderate drop in globalenergy prices in 2011 will weigh on the tradesurplus, resulting in a drop of the currentaccountsurplus to around 15.3% of GDP.** The Economist Intelligence Unit Limited, December 2009Key Information ContactsNational Bank www.nba.azState Committee for Securities www.scs.gov.azMinistry of Finance www.maliyye.gov.azNational Depository Center www.mdm.azMinistry of Economic Development www.economy.gov.azPAGE 58
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2010BAKU STOCK EXCHANGEAZERBAIJAN ECONOMIC CHARTS AND TABLESAnnual data 2007 (a) Historical averages (%) 2003-07Population (m) 8.6 Population growth 1.0GDP (US$ m; market exchange rate) 29,399 Real GDP growth 21.1GDP (US$ m; purchasing power parity) 87,844 (b) Real domestic demand growth 17.2GDP per head (US$; market exchange rate) 3,407 Inflation 8.6GDP per head (US$; purchasing power parity) 10,179 (b) Current-account balance (% of GDP) -1.6Exchange rate (av) Manat:US$ 0.858 FDI inflows (% of GDP) 16.0(a) Actual. (b) The Economist Intelligence Unit estimates.ECONOMIC FORECAST SUMMARY2008 2009 2010 2011 2012 2013Real GDP growth (%) 13.1 7.8 7.4 6.0 5.8 5.0Consumer price inflation (av; %) 21.6 16.5 10.2 8.6 7.7 7.5General government balance (% of GDP) -2.7 -3.6 -3.4 -2.2 -3.3 -3.9Current-account balance (% of GDP) 45.9 30.3 29.1 30.2 28.7 24.7Exchange rate Manat:US$ (av) 0.82 0.81 0.80 0.79 0.78 0.76Exchange rate Manat:[euro] (av) 1.23 1.14 1.10 1.06 1.03 1.002007-PRINCIPAL EXPORTS (%) 2007-PRINCIPAL IMPORTS (%)Petroleum products Food products & animalsMetals Chemicals & petrochemicals PlasticsOtherMachinery & equipmentTransport equipmentFood productsMetals ChemicalsOther81.416.015.58.43.01.51.24.530.212.45.920.02007-MAIN DESTINATIONS OF EXPORTS (%) 2007-MAIN ORIGINS OF IMPORTS (%)RussiaIranItalyGeorgiaTurkeyOtherRussiaItalyGermany UKTurkey Other17.415.517.610.98.38.78.245.55.77.247.87.2PAGE 59
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