General economic situation

In January to December 2006 the GDP grew 34.5% and made up 17,735,8mln AZN at current prices. The growth pace turned out 8.1% 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 36.6% and comprised 14,448,4mln manats. Last year the figure was 33.5%.

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 42.7% and comprised 73% of the total industrial output, or 71.8% up than 2000. Rise in industrial production was observed in oil production by 45.3% and it comprised 32,268mln tons, whereas gas production was 6,763bln cu m amid 18%-rise.

Moreover, rise in industrial production was observed in the non-oil sector (7.8%). Despite cut in special weight of the non-oil sector in the structure of industry, annual rise was observed in money expression of its amount as a result of 1%-relative rise.

In 2000 the figure 13.3mln manats, in 2001 вЂ" 14.6mln manats, in 2002 вЂ" 16.1mln manats, 2003 вЂ" 17.7mln manats, in 2004 вЂ" 21.5mln manats, in 2005 вЂ" 23.3mln manats, in 2006 it rose to 26.2mln manats.

Rise in the chemical industry made up 9.1%, metallurgical industry -9.1%, food production - 4.1%, electric appliances and optic goods (20.6%), machinery and devices (56.4%), furniture вЂ" 21/3%. etc. However, fall in the volume of transport and conveyances (11.1%), plastic wares (25.5%), textile and weaving industry (17.1%) impeded to achieve higher indices.

The growth of production in the agrarian sector rose 0.9% in 2006 against 7.5% in 2005.

The investments put in major capital fell inconsiderably. A total of 5693.6m AZN was invested in economy, which is 14.8% up as compared to 2005 when it was 16.6%. The major reason for rise in investments is growth in demand by the construction of industrial facilities in this sector, where 5071.4mln, or 85% of all investments was spent.

Thus, growth pace of consumer demand continue stable rising. The turnover of retail good turnover rose 13.5%, while the community services grew 42.1%. The growth pace of commercial services increased, while in the retail goods turnover fell, as it seems on the results of 2005, when the rise comprised 13.2% and 26.1% respectively

Major part of demand was satisfied at the expense of export, which grew by 46.58% and comprised $6372,113mln. The volume of import made up $5265,096mln, or 24.76% up as compared to last year. The foreign trade ended in balance with $1107,017mln in black.

Major reason for rise in import operations was increase in the amount of import of transport conveyances and spare parts for them, oil gas and hydrocarbons, food products, machines and electric appliances, electro-technical equipment and spare parts.

Value Added Price

In bn manats

Special weight, in %

Real rise, in %

GDP in total

17735,8

100,0

134,5

production of goods

11504,5

72,9

142,5

including

- industry

10348,2

58,3

156,4

- agriculture

1252,5

7,1

100,9

- construction

1334,7

7,5

108,5

Production of services

3650,3

20,6

118,2

Including:

- transport

948,0

5,3

148,3

- communications

324,3

1,8

124,0

- trade and repair

900,9

5,6

113,5

- hotels and restaurants

90,0

0,5

113,5

- social and different services

1387,1

7,9

105,2

Net taxes on products

1150,1

6,5

112,5

Defliator

105,1

Sources: State Statistics Committee, calculations by Trend

In December 2006, the growth rate of prices on consumer goods and tariffs on services went up by 2.1% versus November 2006. According to the State Statistics Committee, in this period, the price on food products increased by 2.8%, non-food products вЂ" 1.1%, whereas tariffs on services rose 1.8%.

The State Committee fixed in December 2006 that prices on meat increased by 0,2%, dairy, cheese, and eggs вЂ" by 5.2%, bakery вЂ" 1.2%, fish products вЂ" 3.2%, vegetables вЂ" 9%, fruits вЂ" 11%, sugar and confectionery вЂ" 0.7%, oils and fats вЂ" 0.3%, mineral water, juices, and cool drinks вЂ" 0.1%, beer вЂ" o.1%, tobacco вЂ" 0/2%, spirits вЂ" 0.4%. Prices of meat products fell 0.2%.

Over the past ten months of 2006, the inflation ratio reached 8.3% as compared to last year. At the same time, price on food increased by 11.9%, non-food вЂ" 5.3%, tariffs on services вЂ" 2.6%. In December 2006, prices on consumer goods and tariffs increased by 11.4% versus the corresponding period of the last year.

As a result of January to November net incomes of the population rose 22%, and comprised 1189.5mln manats. The net incomes rose 3.7% as compared to last year.

In 2006, the manat improved its position to USD by 5.14% or from 0,9184 AZN in the beginning of 2006 to 0,8714 AZN by the end of 2006.

Starting from December 2006 and up to date, the rate has become more stable. That is first of all linked with the excess of the demand on USD to the supply due to the season when import operations are set up to increase.

The balance in the currency market is usually observed in December-January. Therefore, there are no economic grounds to continue reinforcing the rate, considers the NBA.

In contradiction with Central Banks of other countries, where the fixed rate regime is applied, NBA keeps the regime of free and regulated rate. Therefore, in order to sustain the financial stability, NBA buys all excesses of currency at the currency market, if necessary, said Mr. Abdullayev. The same situation was in 2006, but the interference of NBA to the currency market was linked with the Banks buying excessive USD supply due to the country huge oil dollar revenues. The currency integral is put into the currency market for further conversion. In this regard, in 2006, NBA carried out the intervention of AZN at the amount of $1 bln.

A part of the manat demand is usually covered by the currency market itself. More than a half of the State Budget consists of oil returns due to SOCAR tax allotment to the Budget. The main pressure on the currency market was the Oil Consortium VAT allotments, which was commenced in 2006. Due to the maintenance of the rate stability, NBA covered the demand on manat through redemption of dollar supply excesses at the currency market. In addition to the State Budget, in 2006, SOFAZ (State Oil Fund of Azerbaijan) sold hundred million of dollars at the currency market, which was mainly covered by the market itself.

Taking into account the parameters of the State Budget 2007, the analogous volumes of the NGA intervention is expected to be this year as well. In order to make forecast for the rate of AZN to USD for 2007, the National Bank is still occupied with calculations.

The rate of USD to AZN in the forecast of State Budget 2007 was put at the rate of 0,86 AZN per 1 USD, while in 2006, the corresponding forecast envisaged 0,90 AZN per 1 USD.

The NBA forecasts that consolidation of manat will continue because of rise in supply of dollar exceeds demand in the currency market.

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