Moldova’s industrial production index increased by 4.0% y/y in January and by 4.1% y/y in January-February on average, the statistics bureau announced. It surged by 11.1% y/y in the core manufacturing industries in the first two months of the year.
The warm weather resulted in lower activity in the utilities industry where the production index contracted by 11.1% y/y (January-February). This offset part of the outstanding double-digit growth performance in the manufacturing industry (+9.6% y/y in February alone).
Moldova’s economy has returned to the strong growth cycle started at the end of 2016, which seemed to have stalled in December 2017. The central bank is expected to resume its interest rate cuts cycle soon, which will further support growth. However, the impact of lower interest rates will result in stronger financial intermediation with a significant delay because the banks need time to adapt to new business models — including a switch to lending based on investors’ business plans rather than collateral.
Such interest rate cuts are supported by low inflation, but they were uncertain amid an incomplete restructuring of the banking system. However, the government is now taking steps to privatise quickly the country’s largest two banks, which opens the door for the monetary authority to cut the policy interest rate from the current 6.5%.