GENERAL ECONOMIC SITUATION

In January to Septeber 2006 the GDP grew 34.4% and made up 12,730,2mln AZN at current prices. The growth pace turned out 12.2% more than 2005.

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 39.2% and comprised 10,421,7mln manats. Last year the figure was 28%.

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 46.9% and comprised 75% of the total industrial output. Rise in industrial production was observed in oil production by 49% and it comprised 23,072mln tons, whereas gas production was 4,958bln cu m amid 22.3%-rise.

Moreover, rise in industrial production was observed in the non-oil sector (7.3%), including the chemical industry (rise by 17.3%), metallurgical industry (6.7%), food production (5%), electric appliances and optic goods (17.8%), machinery and devices (31.4%), etc.

The growth of production in the agrarian sector drpped 0.1% in 2006 against 5.5% in 2005.

Sources: State Statistics Committee, calculations by Trend

The investments put in major capital rose inconsiderably. A total of 3251.5m AZN was invested in economy, which is 16.4% up as compared to 2005 when it was 11.4%. The major reason for rise in investments is growth in demand by the construction of industrial facilities in this sector, where 86.2% of all investments was spent.

Thus, growth pace of consumer demand rose. The turnover of retail good turnover rose 12.6%, while the community services grew 40.1%. The growth pace of commercial services increased, while in the retail goods turnover fell, as it seems on the results of the first 9 months of 2005, when the rise comprised 12.5% and 21.4% respectively

Major part of demand was satisfied at the expense of export, which grew by 93.94% and comprised $4847,465mln. The volume of import made up $3778,661mln, or 17.4% up as compared to last year. The foreign trade ended in balance with $1068,895mln 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 0.9% in September, whereas in August September it was 0.9%. However, prices of foodstuff rose 1.3%, non-food products 0.3%, and tarffs and services 0.7%.

In September prices rose 1.3%. Prices meat products rose 0.6%, diary, eggs and cheese 1.5%, bread 0.4%, fish 6%, vegetable 7.7%, sugar and confectionary 0.3%, alcohol drinks 0.4%, tobacco 0.1%.

The griwt pace of infation was 7.3% as compared to last year. Prices of food rose 10.3%, non-food products 4.8%, while tariffs in the service sector incraesd 2.4%. Prces of consumers goods and sercces incrased 10.3% as compared to last year and 6.2% - as compared to last December.

As a result of January to August nominal incomes of the populaton rose 21.2%, and comprised 7416.2m manats. The net incomes rose 0.7% as compared to last year.

Major tendency in the fiscal market in the first 9 momths of 2006 was the consolidation of manat rates in the respect to US dollar. The IMF forecasts the maintenance of consolidation of the naionla currency in respect to US dollar reflects real state and is linked with rse in the cuntry's oil revenues.

According to the National Bank of Azerbaijan, the actual efficiency ratio (REC) of manat for September in the oil sector, relating to the currency of foreign trade partners in the country 12.3% drop in goods turnover, 13.3% drop in import and 11.4% drop in export. Over 9 months the change of net currency rates by 12.9% affected on the REC in the goods turnover, whereas change of prices was 87.1% (with the consideration of oil sector).

Research showed that the impact of the U.S. share on the increase of REC in the foreign trade (with the consideration of oil sector) was 0.3% in September, 0.5% - Turkey, 0.1% - Turkey, 0.2% - Israel, 0.6% - Ukraine, 0.2% - Japan, 0.3% - Iran, 0.1% - Eurozone, 0.05% - UK, and also 0.9% drop on Russia's share and 0.1% on Kazakhstan's share.

In September the REC for the same period of 2005 saw a 7.3% rise in the total amount of trade, 6.5% rise in import and 7.9% rise in export. In September the REC in the non-oil sector rose 3.3%, 3.4% and 1.2% respectively, and 8.4%, 8.7% and 3.6% as compared to 2005.

In September the REC in the non-oil sector showed a drop of 7.7% in the total amount of goods turnover compared to December 2000, a 6.3% drop in import and 23.8% drop in export.

In January to September 2006, regarding the actual rate of the manat in respect of the currency of the United States, Japan exceeded the growth pace of nominal rate of manat. At the same time the rate of manat dropped in respect of the Euro, British pound and shekel of Israel. During this period the actual rate of the manat dropped 4% in respect of the Russian ruble, a nominal drop of 3%, the actual rate of the Kazakh tenge dropped 1.1% and had a nominal drop of 1.4%.

The NBA came to the conclusion that in the long-term period (2000-2006) the REC of the manat dropped, which is evident in Azerbaijan by the availability of foreign trade with major trade partners. In 2001-2006 the level of inflation in Azerbaijan was 32.8%, whereas the average rate of the country's partners was 38.3%. During this period the level of inflation in Azerbaijan was 34%, whereas the country's trade partners were 38.7%.