The World Bank’s January edition of the Global Economic Prospects report forecasts Azerbaijan’s GDP to grow by 2.7% in 2025 and 2.4% in 2026, following an anticipated 4% growth rate in 2024. This marks a significant improvement from the modest 1.1% growth recorded in 2023.

The forecasts for Azerbaijan remain consistent with the World Bank’s October estimates. However, the Ministry of Economy projects slightly higher GDP growth rates of 3.5% for 2025 and 2.8% for 2026. The State Statistical Committee has reported a 4.1% GDP growth rate for 2024.

Economic growth in the South Caucasus is expected to weaken, with projections of 3.9% for 2025 and 3.4% for 2026. The World Bank has flagged several risks to the region's economic outlook, including global policy uncertainties, persistent inflation, climate-related challenges, and the ongoing Russia-Ukraine conflict.

The report highlights the impact of escalating trade restrictions in the Europe and Central Asia (ECA) region, where over 585 new measures were introduced since early 2024. Inflationary pressures are linked to rising service costs, dependence on energy imports, and delayed disinflation.

Military spending across the region surged to 4% of GDP in 2023, driven by the conflict in Ukraine and heightened defense expenditures in Russia, compared to the 2010–2021 average. Slower-than-expected economic growth in Russia could adversely affect Central Asia and the South Caucasus, primarily through reduced remittance inflows. For instance, in Tajikistan, remittances constitute nearly 40% of GDP, making the economy particularly vulnerable.

Climate change remains a critical challenge for the ECA region. According to the report, 21% of the region’s population is exposed to drought risks, underscoring the need for adaptive measures to mitigate environmental and economic vulnerabilities.