General economic situation

In January to July 2006 the GDP grew 16.2% in Azerbaijan as compared to 2005. The GDP grew 35.1% and made up 8803.5m AZN at current prices.

Major factor causing such considerable rise of economic growth pace was the sharp rise in industry. Growth pace of industrial production went up in this period and attained 41.4% and comprised 7128.2m manats. Last year the figure was 23.3%.

The growth was possible at the expense of commencement of the bulk oil production from the Azeri-Chirag-Gunashli fields. The highest growth pace was fixed in the history of industrial development in the country. The oil production grew 51.9% and comprised 65% of the total industrial output. Rise in industrial production was observed in oil production by 51.7% and it comprised 17,217 milion tons, whereas gas production was 3,848 billion cu m amid 25.1%-rise.

Moreover, rise in industrial production was observed in the non-oil sector (8.7%), including the chemical industry (rise by 30.5%), furniture production (38.7%), food production (4.6%), transport conveyances and devices (24.8%), metallurgical industry (26%), other non-metallurgical mineral substances (8.8%), etc

The growth of production in the agrarian sector rose 0.3% in 2006 against 7.4% in 2005.

The investments put in major capital rose inconsiderably. A total of 3164.3m AZN was invested in economy, which is 12.9% up as compared to 2005 when it was 9.7%. The major reason for rise in investments is growth in demand by the construction of industrial facilities in this sector, where 85.8% of all investments was spent.

Thus, growth pace of consumer demand rose. The turnover of retail good turnover rose 12.5%, while the community services grew 37.3%. The growth pace of commercial services increased, while in the retail goods turnover fell, as it seems on the results of the first half-year of 2005, when the rise comprised 12.4% and 21.2% respectively

Value Added Price

In bn manats

Special weight, in %

Real rise, in %

GDP in total

8803,5

100,0

135,1

production of goods

6113,3

69,4

149,1

including

- industry

4891,9

55,6

165,8

- agriculture

451,5

5,1

100,3

- construction

769,9

8,7

107,0

Production of services

2047,5

23,3

110,2

Including:

- transport

462,4

5,3

114,8

- communications

197,3

2,2

124,7

- trade and repair

543,4

6,9

112,5

- hotels and restaurants

62,7

0,7

130,2

- social and different services

781,7

8,9

102,1

Net taxes on products

642,7

7,3

108,7

Defliator

101,0

Sources: State Statistics Committee, calculations by Trend

Major part of demand was satisfied at the expense of export, which grew by 4.17% and comprised $3290.8m. The volume of import made up $2608.4m, or 1.37% up as compared to last year. The foreign trade ended in balance with $682.4m in black.

Major reason for cut in import operations was drop in the amount of import of equipment, technical rigs and spare parts for them, ware of ferrous metal, natural gas, grains, transport conveyances for dry cargo.

Growth pace of consumer prices fell and made up 0.3% in July, whereas in June it was 0.1%. However, CPI rose 9.6% in respect to July 2005. Cut in the pace of inflation was conditioned with a rise in prices of foodstuff by 0.6% against 0.3% in May.

Over the first 7 months of 2006 the consumer prices of goods and tariffs of services grew 6.5% as compared to previous year. In this period the growth pace of prices of the foodstuff was 8.7%, while non-food goods 4.8% and tariffs of services 2.6%.

According to the National Bank of Azerbaijan (NBA), in the first half-year of 2006 the basic inflation was 5.3% as compared to 2005. The monetary factors share in it was 33.7%. The most influential among them was the money mass which rose 33%. It resulted in the rise of prices by 4.3%.

Non-monetary factors (66.3%) made considerable impact on the inflation. The share of administratively regulated prices made up 20% in that period, which is linked with a January rise in prices of diesel fuel twice, kerosene -1.3 times. The impact of seasonal factors was -29%.

Rise in sugar prices resulted in increase of the 5-month inflation by 6% amid its 1.1%-special weight in the consumption basket.

During the year (July 2005 July 2006) rise in foodstuff prices made up 15%, non-food products 5%, services 1.5%. In July theshare of the foodstuff in the formation of inflation was 79.2%, including bread and rolls 1.9%, meat and meat products 31.2%, vegetable 15%, butter and fat 1.9%, milk and eggs 12.8%, sugar and tea 15%, drinks and tobacco 0.7%. In this period the share of non-food products made up 18.3%, services 4.5%

The NBA announced that in July 2006 basic inflation rose 7.6% as compared to last year.

In July index of consumer prices made up 0.6% against June and 4.9% - against December 2005. The calculations were made through the first methodology, which takes into consideration the alternation of administratively regulated prices (energy prices) and seasonal prices (fruits and vegetables).

On the second calculation methodology, which removes fluctuation of prices smoothing sharp tendency, basic inflation was 2.6%. Rise in respect to the beginning of the year was 3.2%, while it was 0.4% against June. While calculating this figure the NBA cleaned by 16% from the basket the amount of goods and services, which have administrative prices and seasonal prices (fruit and vegetable).

As of January to July 2006 net community incomes grew 20.1% and made up 5704.1m manats. As compared to 2005 the growth pace of net incomes was 0.9%.

Savings of physical entities continued rising. As of 1 August 2006, the amount of savings summed up 643.4m manats and exceeded the similar figure of last year by 30.1%.

Major tendency in the fiscal market in the first half-year was the consolidation of manat rates in the respect to US dollar. The NBA said that the maintenance of long-term tendency of cut in nominal, as well as real exchange rates.

The NBA asserts that drop in net efficient rate (NER) in July 2006 as compared to December 2005 in respect to currency trade partners of Azerbaijan. In general trade turnover the rates fell 1.3%, in import 0.6%, export 1.8%. As compared to similar period of 2005 NER rose 2.1% in the general goods turnover, 2.5% - in import and 1.8% - export.

In July 2006 in respect to December 2000 the NER of manat on foreign trade (with the consideration of the oil sector) dropped 10%, in import 2.4%, export 15.9%. In the non-oil sector the NER of manat rose 3.4%, 11.5% and 2.1% respectively.

According to the NBA, with the consideration of the oil sector the real exchange rate (RER) of manat in respect to countrys foreign trade partners, has become expensive in the general trade by 0.7%, while in import 0.8% and export 0.7%. Over the first 7 months the change of currency reserves by 37.5% affected on the RER in the trade turnover, while the change of prices 62.5% (with the consideration of the oil sector).

The researches showed that the U.S. impact on increase of the RER of manat in foreign trade (with consideration of oil sector) made up 0.2%, while Turkeys was 1.3%, UKs 0.1%, Georgia 0.1%, Israel 0.1%, Ukraine 0.3%, Japan 0.1%, while drop was observed in the European zones impact 0.1%, Russias 0.7%, Irans 0.01% and Kazakhstan 0.4%.

In this period real exchange rate of the Azerbaijani manat rose 6.3% in general trade, 5.7% - import and 6.8% - export.

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