Moldova’s nascent economic recovery began in the second half of 2023 and is expected to strengthen from 0.7% last year to 2.9% in 2024 and 3.7% in 2025 almost entirely on domestic demand, according to the European Commission’s Spring 2024 Economic Forecast.

GDP is anticipated to grow by 3.5% in 2024 and 3.7% in 2025, according to the Regional Economic Prospects report published on May 15 by the European Bank for Reconstruction and Development (EBRD).

The EU accession reforms “could increase growth potential in the medium to long term,” the EBRD argues in support of the short-term growth projected, admitting that geopolitical instability remains an important downside risk.

Moldova’s GDP indeed rose by 3.3% year on year in Q3 last year (and 0.2% y/y in Q4, chart), but this was mostly on base effects after a significant contraction in 2022 – the year when the war in Ukraine made a significant negative impact. In fact, the seasonally-adjusted GDP decreased in q/q terms in Q3 last year and remained roughly constant in Q4 – at a level inferior to that seen during the first half of the year.

Indeed, the inflation eased and the National Bank of Moldova (BNM) took an expansionary stance – but the step was taken exactly to address weak economic concerns and the monetary easing will need time as well as more elements (such as foreign investments, investor confidence) to translate into economic growth. It is still premature to project significant growth although the low base encourages such expectations.

Continued employment growth and higher incomes through rising real wages and pensions are set to continue boosting private consumption in 2024 and 2025, the EC says on a positive note.

Investment growth is expected to be supported by looser monetary policy, according to the Commission’s optimistic scenario – a risky assumption at a time when investors wonder whether Russia will take Odesa.

The European Commission also expects a gradual narrowing of the twin deficits. The budget deficit

The deficit-to-GDP ratio is expected to narrow slightly to 4.9%, as measures to mitigate the impact of high energy prices on households are phased out. Expenditure is projected to fall more quickly as a share of GDP than revenue, leading to a further narrowing of the fiscal deficit (and fiscal stimulus) in 2025.

The trade deficit is set to remain very wide on account of the country’s weak export base and reliance on energy imports. Still, it is projected to narrow in 2024 and 2025 thanks to lower energy import prices and stronger exports, in particular of services led by the ICT sector.