Moldovan economy slows down continuously. Economic Leading Indicator - Expert-Grup’s monthly index which includes 6 main macroeconomic metrics, has fallen for the 3rd month in a row, at 87 points. This dynamic shows ongoing negative pressures on Moldovan economy, and in the absence of visible structure reforms, Moldova could enter recession in 2015.
The worsening economic situation is determined both by demand side and supply side factors, which clearly complicates the governments’ task, who should undertake a broad spectrum of economic policy measures. Supply side pressures arise from reduced exports to the EU (-2.6% in Oct 2014, -3.6% in Nov 2014, 1.4% in Dec 2014) and particularly to the CIS countries (-11.8% in October 2014, -37.3% in November 2014, -38.7% in December 2014). This sharp decrease was due to difficult economic conditions in the region, which caused weaker demand for Moldovan products abroad, being also worsened by trade restrictions imposed by the Russian Federation.
The economic downturn, coupled with increased demand for foreign currency caused by suspicious transactions on the market and population’s nervousness, have triggered a substantial depreciation of the national currency. Although the depreciation trend was first observed back in 2011, it has accelerated in Q4, 2014, due to strong reduction of exports and remittances and a number of suspicious foreign exchange transactions in the banking sector.
In 2015, the exchange rate has reached dangerous level, due to increased demand for currency from population and businesses, which expected future depreciation. Therefore, from the beginning of the year, MDL has depreciated 25% against the US dollar. As a result, due to mounting inflationary pressures, Moldovan’s National Bank tightened its monetary policy, while the share of foreign currency deposits increased to 50.9% in Jan 2015 (from 39.5% in Jan 2014).
This material has been published by the Independent Think Tank Expert-Grup with the support of East-Europe Foundation, based on the resources provided by the Swedish Government via the Swedish International Development Cooperation Agency (Sida) and Danish Ministry of Foreign Affairs/DANIDA