Moldovan economy’s growth exceeds expectations despite worsening crisis

Chisinau, 16 March /MOLDPRES/- Economic commentary by MOLDPRES State News Agency

Moldova’s economy shrank by 0.5 per cent in 2015, thus exceeding the forecasts made by analysts and authorities, who were expecting a decline of up to two per cent. The National Bureau of Statistics (BNS) on 15 March announced the results for 2015, according to which the Gross Domestic Product accounted for almost 122 billion lei.

The economic evolution is surprising, taking into account the fact that the final consumption decreased by 2.1 per cent, foreign trade was declining, agricultural production fell by almost 14 per cent, industrial growth did not exceed its margin of error and remittances went below the level of the 2009 crisis.

However, statistics show that the growth rate has significantly fallen to 2.5 per cent in the second quarter against 4.8 per cent in the first three months of 2016, while reaching 3.7 per cent and 3.3 per cent, respectively, in the last three months of the year.

The Economics Ministry, World Bank, European Bank for Reconstruction and Development were forecasting a two-per-cent contraction of the Moldovan economy in 2015. The GDP’s shrinking by two per cent in 2016, is according to the forecast “an obvious regression in Moldova’s development, while a quick revival of its economy in the next year would be too nice to be true,” the authors of the “Tendencies in Moldovan Economy” study, launched by the National Institute of Economic Researches, say.

The forecast of Expert-Grup Independent Analytical Center “hit the target”, as it coincided with the data made public by BNS. “The recession in 2015 was basically caused by all the GDP components. We witness a major decrease in the consumption margin, investments and exports,” the executive director of Expert-Grup, Andrian Lupusor said. According to him, “the decrease would have probably been bigger if the depreciation of Moldova’s national currency did not happen, as it softened the economic decline of 2015 by discouraging imports and encouraging exports. Moreover, those few foreign investments made in lei, were actually larger, thus fueling the economic growth in lei. The inflationary impact of the national currency’s depreciation was noticed only in late 2015 and early 2016, and therefore, did not have an immediate effect on the GDP’s real growth. Depreciation had a temporary effect on Moldova’s economic growth”.

According to Lupusor, “the the 0.5-per-cent decrease does not actually reflect the seriousness of the recession. The situation is worse, as there is a long period of slow economic growth waiting for us in the next years. It should concern us the most, because the forecast economic growth is twice smaller than the annual six or seven-per-cent growth Moldova should register in order to align with the countries in the region.

Similarly to other experts, the executive director of Expert Grup believes that the banking crisis has nothing to do with the recession in 2015. According to him, “its consequences will be noticed in the next years”.

The National Institute of Economic Researches forecast a 0.6-per-cent economic growth in 2015, if “imminent risks were managed adequately”, thus being very close to the indicators made public by BNS.

Experts of the Viitorul (Future) Institute for Development and Social Initiatives (IDIS Viitorul), who anticipated a four-per cent drop, are more reserved in comments. “Taking into account that there were major deficiencies in the banking system, it is important that we understand whether the work and data provided by the banking system are true. In reports by the National Bank of Moldova (BNM), only Banca Sociala (Social Bank) informs about the accumulation of net incomes and interests worth over 600 million lei. It is worth mentioning that this index represents the sources of added value in the national economy; at the same time, the concerned index is calculated and not obligatorily collected, i.e. this is not obligatorily an accomplished added value,” expert Sergiu Gaibu said.   

According to Gaibu, when the banking system is healthy enough, the concerned deviations are ignorable at the level of statistics on nation; but when three banks are under liquidation and embezzlement worth over ten per cent of the Gross Domestic Product (GDP) were made through them, the assets are in a lamentable state, an increased interest on a compromised portfolio represent ephemeral values, and the proportions of these values are able to have an impact on statistics, in general.  

This is an unprecedented situation, Gaibu considers, stressing that it was necessary to investigate and correct the national statistics with the concerned values. “Unfortunately, this subject, which has been earlier mentioned by IDIS Viitorul, was not considered in detail by state institutions and the true impact of the financial data of these three banks was not examined,” the expert noted.

The National Statistics Bureau (BNS) finds out that the decrease in the Gross Domestic Product was triggered by a 13.4-per cent drop of the gross added value in the agricultural sector, forestry and fishing, a 0.5-per cent diminution in trade and a 1.4 –per cent cut of the gross added value in the public administration and defence; mandatory social insurances; education, health and social assistance. On the other hand, a 20.1-per cent increase in the gross added value was recorded in the financial and insurances activities, a 3.4-per cent one in the extractive industry and processing industry, as well as a 4.3 per cent rise in real estate transactions and other activities.       

The net export, which registered a 4.3-per cent increase, was an important factor in GDP’s formation. Yet, according to experts, this export “had a rather arithmetic positive effect on the GDP.”

The prospects for this year differ from one institution to another, from a stagnation anticipated by the European Bank for Reconstruction and Development to a pretty moderate 2.9-per cent growth in 2016, expected by Expert-Grup. The World Bank anticipates a 1.5-per cent increase, and the Economics Ministry, according to a forecast updated in October 2015, counts on an advance of 1.5 per cent.  

(Reporter V. Bercu, Editor F. Galaico)