Moldova’s industry gains momentum after two-year stagnation

Moldova’s industry gains momentum after two-year stagnation
By Iulian Ernst in Bucharest November 15, 2017

Moldova’s industrial production growth accelerated to 5.7% y/y in Q3, according to bne IntelliNews calculations based on statistics office data. The advance, however, was partly caused by low base effects, and the annual growth was negative: -0.9% in Q3 2016.

The country’s industrial growth has thus improved significantly in Q3 and the 12-month rolling period, after two years of stagnation amid political turmoil. The settlement of the situation at Moldova’s troubled banks, the successful reduction of inflation and the political stabilisation paid dividends.

Scarce financial intermediation remains a major problem though. In the medium term, the International Monetary Fund has recommended that the central bank pursue less tight policies, and the central bank has already cut the key rate in October to 7% with further cuts likely to follow. The entry of foreign banks (Romania's Banca Transilvania is in process of taking control, together with EBRD, of the third-largest bank Victoriabank) will significantly stir competition and help corporate lending with a positive impact on industrial output.

Separately, the political stabilisation increased the interest of foreign investors in developing manufacturing plants in the country. Sumitomo Electric Bornetze, a German-based part of Sumitomo Electric group, announced that it has completed the automobile cabling parts plant in Moldova at Balti, internet portal Mold Street announced on October 24.

The core manufacturing sector advanced even faster, by 6.4% y/y in Q3. Mining and quarrying, where the activity contracted by 13% y/y, dragged the overall performance index down.

The 12-month rolling (trend) industrial output index increased by 2.2% y/y, the highest growth rate since November 2015.

Speaking of Q3 performance by sector, the highest increase was recorded in the production of electric equipment (+59% y/y, after 34% y/y advance in Q2), spirits production (+27% y/y in Q3, after +49% y/y in Q2) and wood processing (+24% y/y in Q3, after +1.7% y/y in Q2). Robust growth was seen in fruits and vegetables processing (+20% y/y in Q3, after negative -2.8% y/y dynamics in Q2) and wine production (+15% y/y in Q3, after 7.7% y/y increase in Q2).

Industrial Production y/y 2013 2014 2015 2016 Q4-16 Q1-17 Q2-17 Q3-17
TOTAL 8.6% 7.3% 0.7% 0.9% 2.7% 1.1% -1.0% 5.7%
Mining, quarrying 22.3% 0.2% -9.2% -15.5% -13.2% -16.9% 9.2% -13.6%
Manufacturing 10.7% 8.5% 2.3% 1.8% 1.2% 0.4% -0.1% 6.4%
Utilities -4.3% 4.4% 1.0% -0.9% 14.7% 3.3% -10.8% 7.0%
Source: BNS