Expert-Grup of Moldova says growth takes place amid deeper erosion of competitiveness

Chisinau, 9 December /MOLDPRES/ – Economic year 2016, despite being more beneficial than 2015, confirmed the main Moldovan economy’s problem, that is reduced competitiveness. After recession 2015 (– 0.5%), Gross Domestic Product recorded a marginal recovery in 2016, with a 3 per cent growth. This was due to growth in two sectors which, most likely, is not sustainable, agriculture and services, according to recent MEGA publications launched by Independent Analytical Centre Expert-Grup.

The agriculture sector registered a compensatory increase after drought in 2015, but low comparison base effect will dissipate in 2017, and growth can not be sustained due to lower investment. The service sector recovered due to moderate final consumption increase, which resulted by wage growth. The advance occurred out of lower labour productivity and investment in fixed capital, which implies repercussions on competitiveness, by appreciation of experts.

Deficiencies of competitiveness were developed by the fact that in 2016 the final consumption was basic economic growth reason, which led to increased imports, while exports in real terms fell. As such, similar MEGA previous edition, principle source of economic shocks amortized in 2015 – net exports – was dissipated in 2016.

"At first glance, there appear encouraging economic trends for 2017, an increase of Gross Domestic Product (GDP) 4 – 5 per cent. But, growth will take place amid erosion and greater competitiveness: the current account deficit will expand, because the gap between imports and exports – one of the main challenges for the coming years, the slowdown in flows of remittances and foreign direct investment and high indebtedness of the country," estimated Andrian Lupusor, Expert-Grup executive manager.

According to him, Moldova's foreign debt is similar to GDP and the ratio of the cost of servicing foreign currency reserves and the level is close to the level of sustainability. Namely, competitiveness problems for a such small country and so open as Moldova, will be the main brakes on economic growth in the coming years (which, by the way, should be about 7 – 8 per cent to reach in time proximate levels in Eastern Europe), the expert believes.

The publication authors think despite positive economic growth anticipated for 2017, authorities should tighten fiscal burden and should relax more actively monetary policy (inflationary pressures from the demand remain weak), and be very cautious in promoting fiscal austerity (budget cuts must not touch health and education domains, which not only represent substantial GDP proportions and are responsible for the quality of human resources).

The main medium – term challenge is related to low labour productivity. The gap between real wage growth and labour productivity in recent years accentuated even amid the emigration of working age and constant employment rate reduction.

Meanwhile, main long-term challenge keeps increasing balance of payments deficit. The gap between financial flows leaving and entering Moldova is expected to grow in upcoming years, oscillating around 4 – 5 per cent of GDP values, by experts’ opinion.

(Reporter V. Bercu, editor A. Raileanu)