The European Commission lowered the forecast for Moldova's GDP growth in 2023 from 2.8% to 1.7%, in 2024 - from 4.1% to 3.8%, and for 2025 predicts its growth by 4.2%.
Such information is contained in the macroeconomic forecasts of the European Commission "Autumn 2023 Economic Forecast", which, among other things, provides a separate overview of the structural features, recent indicators and prospects for the development of the Moldovan economy, along with forecasts for other countries with EU accession status. The Moldova report said that after multiple crises and more than a year of economic contraction, Moldova's economy is expected to return to growth in the second half of the year. Lower inflation, looser monetary policy and increased agricultural production will stimulate private consumption and investment. It is also expected that the budget deficit will decrease slightly. It is emphasized that the Moldovan economy shrank by 5% last year (according to the NBS - by 5.9%), primarily due to a fall in private consumption, as rising inflation due to high food and energy prices hit household income. Investment also fell due to tightening monetary policy and increased uncertainty from the war in neighboring Ukraine. The materials of the European Commission say that the forecast for Moldova’s real GDP for 2023 was slightly lowered compared to the spring forecast. This reflects a continued contraction in output in the first half of the year (-2.3% year-on-year) as falling real wages continued to weigh on private consumption and agricultural exports hit by a poor harvest in 2022. However, the growth outlook for 2023 is positive, driven by a projected recovery in private consumption in the second half of the year, supported by lower inflation and continued employment growth. Business sentiment improved in the second quarter and points to a modest contribution from investment to the economic recovery in 2023 before further strengthening in 2024 and 2025 following monetary easing. Output in manufacturing and construction should recover, while the ICT sector should remain a bright spot for growth. Agricultural production is forecasted to partially recover in 2023 after severe drought in 2022, which should support export growth. However, net exports will remain a drag on economic growth as imports also recover over the forecast horizon in line with private consumption growth. The EC materials indicate that the easing of monetary policy followed a rapid fall in inflation. After peaking at 34.6% in annual inflation in October 2022, inflation has slowed sharply amid stabilization in food and energy prices, tight monetary policy and base effects since early 2023. The central bank has cut rates from a peak of 21.5% in August 2022 to 6% in June 2023 (On November 7, the NBM reduced it to 4.75% per annum). As noted, the labor force in Moldova is growing from a low base in the first half of 2023, despite the decline in economic activity, partly due to the return of Moldovans who previously worked in Russia and Ukraine. Refugees from Ukraine now make up about 2.5% of the population and have increased the labor force by about 1%, but this effect may disappear in the future. Nominal wage growth in 2022 gave way to soaring inflation, leading to a loss of purchasing power as real wages fell by about 13%. The situation will change in the second half of 2023, with real wages continuing to rise in 2024-2025 as inflation declines, which will be facilitated by an increase in the minimum wage and wages in the public sector. Moldova's trade balance will remain deeply negative due to a weak export base and high energy import prices, despite the services trade balance being supported by the large number of Ukrainian refugees in Moldova. However, the large and persistent current account deficit is projected to begin to narrow as agricultural exports, driven by a higher harvest in 2023, will drive export growth in the second half of 2023 and into 2024. Remittances are projected to remain strong and stable, while Moldova is expected to continue to receive official foreign remittances. The 2023 budget is said to target a deficit of 6% of GDP, although shifting spending to the second half of the year increases the risk of default, which is an ongoing problem, particularly affecting capital spending that drives economic growth. The budget deficit is projected to remain high, although it will decline as spending grows less rapidly than revenue. Earnings growth is expected to be supported by still high inflation and a recovery in business activity going forward. Expenditures are projected to be impacted by reduced spending on measures to mitigate the impact of high energy prices on vulnerable households, in line with lower energy prices. Thus, by 2025, public debt will rise moderately to a still low level of 37.2% of GDP from 35.2% of GDP in 2023.// 15.11.2023 — InfoMarket.
