Moldova’s GDP 3.7% up y/y in Q1 driven by domestic demand

Moldova’s GDP 3.7% up y/y in Q1 driven by domestic demand
By bne IntelliNews June 18, 2018

Moldova’s GDP increased by 3.7% y/y to MDL37.6bn (€1.83bn) in Q1, losing momentum from the 5%-6% y/y advances in the second half of last year, the statistics bureau said.

The country’s GDP has risen by 4.0% p.a. since 2010, but this remains below the rates needed for the country's convergence with the European Union. Structural and institutional reforms are needed in order to stimulate the long term economic growth up to optimal levels (7%-8%), according to local think tank Expert Grup.

The ageing population, leading to low propensity for consumption, and the shortage of private capital, resulting in weak demand for investments, are the two main factors that keep Moldova stuck in a low-growth rut, the think tank concluded in its quarterly Moldova Economic Growth Analysis (MEGA) published April 25. 

Seasonally adjusted GDP edged down by 0.8% q/q in the quarter, but this is not a particular concern. The quarterly decline is mostly explained by the high volatility in agriculture, a sector that accounts for over 13% of the country’s economy. The value added generated by the sector soared by 19.4% y/y in Q4 last year (in volume terms) following an above-average harvest, but the growth vanished in Q1 (to 0% y/y) when the sector accounted for only 3.5% of the gross value added (versus 16% in Q4).

Domestic consumption is growing above average, but Moldova’s GDP is equally driven by external demand. Households’ consumption rose by a sturdy 4.3% y/y in Q1 (though slower than the 5.3% y/y average in 2017). Gross fixed capital formation increased by 4.2% y/y as well (versus 5.2% y/y in 2017). The two elements contributed 4.0pp and 0.9pp respectively to the overall GDP growth. Exports (13.6% up y/y in volume terms) contributed 5.0pp. Strong domestic demand has driven imports higher as well (11.6% up y/y).

On the GDP formation side, the value added generated by the services sector (20.4% of the total) increased by 6.3% y/y, contributing 1.2pp to the GDP growth. Industry contributed 0.8pp as well, and achieved 4.6% higher value added (17.2% of total). Notably, the information and communication industry (6.6% of GDP) expanded by 9% y/y in terms of value added and contributed a notable 0.6pp to the overall GDP growth.

Q1 GDP data come in line with the 3.5%-3.8% growth projected for the whole year by the International Monetary Fund (IMF), World Bank and rating agencies. But the country surpassed international financial institutions’ expectations last year, when its GDP expanded by 4.5%, 1pp above the figure expected by IMF and World Bank. One key driver of the robust increase last year was the improvement in tax collection.

Local independent experts are more optimistic about Moldova’s growth rates. Expert Grup forecasts the country’s GDP will grow by 5.6% this year and 4.0% in 2019 (after 4.5% growth in 2017) under the baseline scenario, while under the pessimistic scenario the growth rates would be 3.8% and 3.0% respectively.

Data

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