The European Commission Includes the Republic of Moldova for the First Time in Its Annual Economic Forecasts

The European Commission, the executive body of the EU, released today its annual report (European Economic Forecast) that anticipates economic developments and analyzes the current state of the economies of EU countries. This year, for the first time, the report also includes an analysis of the economy of the Republic of Moldova, as well as that of Ukraine and the Balkan countries aspiring to join the EU.

The report, appearing with a slight delay, begins by noting, “Faced with multiple crises and after over a year of economic contraction, Moldova’s economy is expected to return to growth in the second half of the year. Lower inflation, more relaxed monetary policy, and stronger agricultural production will stimulate private consumption and investment. It is also estimated that the fiscal deficit will decrease slightly.”

Economic recovery after the contraction in 2022

Moldova’s economy contracted by 5% last year, primarily due to a decrease in private consumption as inflation rose due to higher prices for food and energy, reducing household incomes. Investments also decreased due to the tightening of monetary policy and increasing uncertainty resulting from the Russian aggression against Ukraine.

The prospects for real GDP in 2023 have been somewhat revised downward compared to the spring forecast of 2023. This reflects the continued contraction of production in the first half of the year (-2.3% YoY), as the decline in real wages continued to influence private consumption, and agricultural exports suffered due to the poor harvest of 2022. Growth prospects for 2023 are nevertheless positive due to the projected increase in private consumption in the second half of the year, supported by lower inflation and continued labor force growth.

Industrial and construction production is expected to recover, and agricultural production is anticipated to have a partial rebound after the severe drought in 2022, contributing to export growth. However, net exports will remain an obstacle to economic growth as imports recover in line with private consumption growth.

Monetary policy relaxation follows rapid inflation decline

After peaking at 34.6% annually in October 2022, inflation sharply decreased due to stabilizing food and energy prices, strict monetary policy, and base effects from early 2023. The central bank reduced the policy rate from its peak of 21.5% in August 2022 to 6% in June 2023, where it remained. Subsequent inflation, excluding volatile food prices, followed suit.

Economic recovery is also partly due to the return of Moldovans who previously worked in Ukraine and Russia. Refugees from Ukraine now represent about 2.5% of the population and have increased the workforce by about 1%, but this effect may dissipate in the coming years.

FOR THE MOST IMPORTANT NEWS, FOLLOW US ON TWITTER!

The nominal wage growth in 2022 was surpassed by dizzying inflation, leading to a loss of purchasing power as real wages decreased by approximately 13%. This is scheduled to reverse in the second half of 2023.

Public debt, on the other hand, is expected to moderately increase to a still low level of 37.2% of GDP by 2025.

The largely positive conclusions of the report are an additional asset for the heads of state and government of the 27 EU countries to recommend starting accession negotiations with Chisinau at their summit in December. The European Commission and the Parliament have already made recommendations in this regard.

Subscribe to our newsletter

Similar Articles

Calendar

Most Popular