Azerbaijan economy contracted 3.2% y/y in 2M16, with non-oil GDP down 5.5% y/y and oil GDP up 1.3% y/y. The contraction was driven by a strong decline in construction (-32.4% y/y) and transport and storage (-14.6% y/y), while trade (+4.2% y/y), manufacturing (+6.4% y/y), and mining (+0.9% y/y) contributed positively. 
In nominal terms, GDP in 2M16 increased 13.7% y/y to AZN 4.0bn, while in US$ terms, it declined 41.0% y/y to US$ 5.0bn.

Inflation rate at 9.8% y/y and 0.4% m/m in February 2016
Annual CPI inflation rate retreated to 9.8% in February 2016 from 13.7% in the previous month, according to AzSTAT. In February, food prices were up 11.8% y/y (-6.7ppts m/m), non-food prices were up 14.5% y/y (-2.8ppts m/m), and service sector prices were up 3.3% y/y (-1.1ppts m/m). 
On a monthly basis, inflation rate was 0.4% in February 2016. Food prices were up 0.6% (-8.1ppts m/m), non-food prices were up 0.6% y/y (-5.0ppts m/m), and service sector prices were up 0.1% (-2.0ppts m/m).

Trade balance back to a surplus in February 2016
In February 2016, exports declined 46.4% y/y to US$ 566.4mn while imports fell 52.7% y/y to US$ 537.1mn, resulting in a trade surplus of US$ 29.3mn compared to a US$ 77.9mn deficit in February 2015. The fall in exports was broad-based, with mineral exports falling 45.3% y/y to US$ 456.6mn and non-mineral exports falling 50.4% y/y to US$ 109.8mn. On the import side, the decline was due to last year’s high base (mostly one-offs), as well major declines in transportation (-78.2% y/y), vegetable (-52.2% y/y), and foodstuff (-63.9% y/y) imports. The number of cars imported decreased 88.8% y/y to 384 units in February 2016.

Reserve requirements for FX liabilities increased to 1.0%
Effective May 1, 2016, with the objective of reducing dollarization, Central Bank of Azerbaijan increased the reserve requirement for FX liabilities of banks from 0.5% to 1.0%, while the requirement for local currency liabilities was kept at 0.5%. At the same time, the reserve requirements for non-resident financial sector liabilities and liabilities for settlement with international financial institutions were eliminated (previous 0.5%).