Azerbaijan’s Economy in 2025: Slowing Growth, Inflationary Pressure, and Geopolitical Tensions with Russia

When Azerbaijan’s Economic Council convened on February 27 under the chairmanship of Prime Minister Ali Asadov, the agenda went beyond a routine macroeconomic review. At the center of discussions was the draft “Socio-Economic Development Strategy of the Republic of Azerbaijan for 2027–2030,” currently under active preparation and consultation.

Azerbaijan’s drive to modernise one of the South Caucasus’s oldest vehicle fleets is entering a more uncertain phase. After several years of tax incentives that fuelled a surge in hybrid imports, the government is withdrawing key exemptions — a move that risks slowing the transition from ageing internal combustion engines to cleaner models.

At the World Economic Forum in Davos, President Ilham Aliyev spoke at the Azerbaijan Executive Breakfast, a high-level event designed to present Azerbaijan not only as a resource-rich state but also as a strategic center for regional integration, economic diversification, and the attraction of foreign investment.

Food prices in Azerbaijan followed a two-track trajectory in 2025, with sharp increases in staple goods and dairy products counterbalanced by steep declines in vegetables and selected protein items. The result was a net fall in the overall food basket, despite persistent inflationary pressure on everyday essentials.