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Real Economy from October 2015 (#54)

Portul Internațional Giurgiulești | Foto: Dmitry Kostyukov pentru New York Times Portul Internațional Giurgiulești | Foto: Dmitry Kostyukov pentru New York Times
Publishing date: Monday, 02 November 2015
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Moldovan economy is still in recession. For the 11th consecutive month, the Economic Leading Indicator (ELI) - an index calculated monthly by Expert-Grup and which aggregates six main macroeconomic indicators, is below 100, which indicates an economy that is contracting. Overall in 2015, we expect a GDP decline of -0,5% (baseline scenario) and -2,5% (pessimistic scenario).

The main channels through which the economic crisis spreads are banking sector, exports and remittances.  The banking sector is affected by a credibility crisis following the fraud at the three banks, which were already liquidated (BEM, BS and UB). To make matters worse, the central bank severely tightened the monetary policy, while at the same time, consumption reduction and economic crisis is contributing to the accumulation of toxic assents in the system. Therefore, both banks have become more cautious with lending and the demand for credit has decreased. As a result, in Sep’15 the amount of new loans plunged with 37% compared to last year, and if taking into consideration the currency depreciation, the contraction is even more acute – 62% down from last year, while the loans offered in foreign currency decreased two-fold.

Exports are in a steady decline in the last 15 months, and in Aug’15 (the latest data available) they shrank with 28% compared to Aug’14, mainly due to the Russian financial crisis and the sluggish growth in the EU. In the same month, remittances decreased by a record 47% compared to last year, beating the previous low from the economic crisis in 2009. These evolutions have had their impact on consumption, investment activity and revenues.

Besides the economic crisis, the budget crisis and banking problems, Moldova is currently facing a far more fundamental deadlock: a country-wide profound crisis. Essentially, the main institutions that should ensure a normal functioning of a state are broken and the government is a “prisoner” of political battles, intrigues and arrangements made outside the government buildings. Perpetuating this country crisis could not only undermine Moldova’s pro-European vector, but also lead to the collapse of the country’s entire democratic system of government.


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