Investments in long-term assets decreased by 21% y/y in comparable prices in H1 to MDL5.5bn (€0.25bn) or 4.1% of the year’s projected GDP, according to Moldova’s statistics bureau. The decline has slightly moderated from 22.6% y/y in Q1, but remains sharp. Investments contracted by 8.8% y/y in 2015, to MDL20.8bn or 17.0% of GDP.
The sharp contraction in investments during H1 comes against the government’s optimistic expectations for 2% GDP growth in the full year. Though there is no proven causality relationship, declines in investments during H1 have been typically correlated with negative GDP growth rates in the past decade (see chart).
This does not neceessarily invalidate the government's expectations, particularly as the H1 investments account typically for only one third of full-year investments.
On the downside, investments in machinery and equipment plunged by 28.8% y/y to nearly MDL2bn. This is not likely to support high industrial production growth rates. For this year, the government expects a 2% expansion in industrial production, but it hopes the rate will accelerate to 4% next year and 5% the following year. Such performances require more significant investments in the outdated equipment of the state companies and greenfield investments in new production capacities.
Investments in residential buildings edged down by only 2.4% y/y to MDL0.96bn while investments in non-residential buildings fell by 18.3% y/y to MDL0.97bn.