Baku: Fitch Ratings has announced its outlook for inflation and economic growth in Azerbaijan, APA-Economics reports.

According to Azeri-Press News Agency, headline inflation in Azerbaijan increased to 5.9% year-on-year in May, influenced in part by base effects and rises in minimum wages during the first quarter of 2025. Fitch projects that the annual average inflation will be 5.3% in 2025 and 4.6% in 2026. These figures fall within the central bank's tolerance band of 4% plus or minus 2 percentage points. The agency does not anticipate any rate cuts until 2026.

In terms of economic growth, real GDP in Azerbaijan grew by 1.5% year-on-year from January to May 2025, largely driven by a 3.9% year-on-year increase in the non-hydrocarbon economy. Fitch expects the full-year growth for 2025 to be 3.5%, which is a decrease from the 4.1% growth recorded in 2024. For 2026, the growth projection is 2.5%. Public investment and the non-hydrocarbon sectors are expected to be significant contributors to this growth. However, progress towards economic diversification remains constrained by several factors, including the large state presence in the economy, limited financial intermediation, governance challenges, and low levels of non-energy foreign investment.