Moldova’s industrial production index increased by a mere 0.9% y/y in 2016, after the disappointing 0.7% advance in 2015, the statistics bureau BNS reported on February 17. 

The increase was low as a result of the trade barriers imposed by Russia on Moldovan food and beverages in response to Chisinau's signing of the Association Agreement with the European Union in 2014. The only bright spot was in light industry - in particular clothing and textiles production - which has benefitted from the agreement with the EU. 

The production index increased by 2.7% y/y in Q4, the best performance in the past six quarters. However, this was a low base effect after the 6.2% plunge one year earlier.

Industrial performance was comparatively better in the manufacturing sector, 1.8% y/y in full 2016 (yet down from 2.3% in 2015), but performances varied widely between individual industries. 

Broadly speaking, production of food and beverages lost ground while light industry (fabric, clothing) gained momentum. The production of alcoholic beverages decreased by 5.4% y/y in 2016, with a 0.6pp negative impact on overall industrial growth. Processing of fruit and vegetables contracted by 11% y/y with a negative impact of 0.5pp. 

By contrast, the production of fabric expanded by 75% contributing 1.6pp to overall industrial growth. Similarly, clothing production expanded by 12.5% contributing 0.7pp. 

Light industry has visibly derived benefits from the free trade agreement with the European Union. However, food producers have yet to meet the quality requirements to enter the European market.

Industrial Production y/y	2013	2014	2015	2016	Q1-16	Q2-16	Q3-16	Q4-16
TOTAL	8.6%	7.3%	0.7%	0.9%	0.3%	1.1%	-0.9%	2.7%
Mining, quarrying	22.3%	0.2%	-9.2%	-15.5%	-10.9%	-24.4%	-11.0%	-13.2%
Manufacturing	10.7%	8.5%	2.3%	1.8%	1.8%	3.8%	0.7%	1.2%
Utilities	-4.3%	4.4%	1.0%	-0.9%	-3.6%	-13.5%	-13.2%	14.7%
Source: BNS