Azerbaijan’s economy is projected to expand by 2.5% in 2026, accelerating from an estimated 1.4% growth in 2025, according to a new forecast by Fitch Solutions.

The firm expects growth to be driven primarily by domestic demand, supported by easing inflation and a relatively healthy labour market. It noted that while the oil sector will continue to face challenges amid lower global crude prices and Azerbaijan’s high dependence on hydrocarbon revenues, overall economic prospects remain broadly positive.

Fitch Solutions said fiscal constraints remain a risk, particularly given declining oil output. As of December 2025, the oil sector accounted for 47.4% of GDP, while the non-oil sector made up 52.7%. Oil production fell 7.3%, leading to a 2.6% year-on-year contraction in overall output, while non-oil GDP grew 8.6%.

The report highlighted that new trade and investment agreements signed with China, Germany, Turkey and several European partners could support further expansion of the non-oil sector.

Private consumption is expected to be the main growth driver, contributing around 2.5 percentage points to GDP expansion in 2026. Unemployment is forecast to remain near 5.2%, with continued growth in real wages supporting household spending.

On the monetary side, Fitch Solutions expects the Central Bank of Azerbaijan to maintain a cautious policy stance and keep the manat stable. Inflation is projected to decline to 5.0% by end-2026, down from 5.6% in 2025, remaining within the Central Bank’s 2–6% target corridor.

However, the report warned that geopolitical tensions and global supply chain disruptions pose upside risks to inflation. Sanctions on Russia could indirectly affect Azerbaijan, particularly as the country imports 20–30% of its grain, dairy and meat products from Russia, leaving it sensitive to rising transport and operational costs.

In this context, Fitch Solutions expects the policy rate to be gradually reduced from the current 6.50% to 6.00% by end-2026. The manat is forecast to remain tightly managed at AZN1.70 per US dollar, reflecting the government’s continued commitment to exchange rate stability.

On fiscal policy, the firm anticipates a conservative approach in 2026 aimed at gradually reducing dependence on oil revenues. Non-oil budget revenues are projected to grow at double-digit rates and account for more than 57% of total budget revenues, signalling further diversification of the fiscal structure.

Transfers from the State Oil Fund of Azerbaijan (SOFAZ) to the state budget are expected to decline by 11%, reinforcing efforts to reduce oil dependence. The budget deficit is forecast at around 1.9% of GDP in 2026, broadly in line with 2025 levels, while annual growth in revenues and expenditures is expected to be limited to approximately 0.7% amid uncertainty in global energy markets.

Defence spending is projected to remain elevated and continue growing in 2026, maintaining a significant share of total expenditure.

The report also pointed to growing investor interest in the US-backed TRIPP corridor (Trump Route for International Peace and Prosperity). With a preliminary peace agreement between Armenia and Azerbaijan and increased US geostrategic engagement in the region, interest in new transit projects has strengthened.

The TRIPP corridor, envisaged to connect mainland Azerbaijan with Nakhchivan through Armenian territory, could reshape the region’s logistics landscape. According to the report, key elements of the project would be managed by US-backed entities, with a joint venture established to develop a paid transit zone. US officials have indicated that “billions of dollars” in investment could be mobilised for related projects.

Fitch Solutions believes parallel initiatives in energy security, transport infrastructure and logistics could strengthen Azerbaijan’s role as a regional transit hub, with economic and strategic cooperation with the US expected to deepen further in 2026.