Moldova Economic Forecast

The economy has faced headwinds so far this year. GDP fell annually for the fourth consecutive quarter in Q1 on weak domestic and external sector activity. However, the drop was softer than Q4 2022’s 10.6%, chiefly on smaller decreases in private spending, fixed investment and net exports. In Q2, the economy likely remained in the doldrums. In April–June, industrial production declined more than in Q1, while merchandise exports plunged over 20% year on year on average (Q1: +1.1% yoy). More positively, inflation moderated in the quarter, allowing the Central Bank to cut interest rates by more than half in May–June; both developments should have lifted some of the pressure off of household budgets. In other news, in August, the EU reallocated USD 147 million—previously intended for programs with Belarus and Russia—to fostering cooperation with Moldova and Ukraine.

Inflation fell to a 21-month low of 10.8% in July (June: 13.2%) on lower price growth for food and housing services. Average inflation should more than halve in 2023 from last year’s high on lower commodity prices year on year and a base effect. Stronger-than-expected activity, external supply shocks and renewed disruptions to energy supplies this winter pose upside risks.