CNPWorking groupsEconomic DevelopmentNewsWill Moldova be able to avoid a second wave of economic downturn?

Will Moldova be able to avoid a second wave of economic downturn?

Will Moldova be able to avoid a second wave of economic downturn?

crizaThe year 2011 may bring in a real 6-per-cent increase in the Gross Domestic Product, the Economics Ministry has forecast. It is a good signal as it means that the agricultural sector, industry and exports propelled the economy. Nonetheless, the last quarter saw a slowdown in the pace of growth, with the index falling by almost a half against the first quarter, when it reached 8.4 per cent, thus topping the highest level in the last years.

It is the same trend of economic slowdown that we are witnessing in the eurozone and in the CIS countries. The question is what will happen in 2012. The prospects for the economy in the eurozone in 2012 are clear: Europe will fail to avoid a recession, whose depth and length cannot be anticipated, although some economists expect it to last half a year only. The CIS countries, to which we are economically linked as much as to the western ones, will see their economies going down as well, but will manage however to avoid a down turn.

If a deep economic crisis in the European Union hits the economies of Russia and Ukraine, then Moldova will go through an economic downturn caused by a high decrease in remittances from abroad, exports and inflow of private capital, the head of the IMF Mission to Moldova, Nikolay Gueorguiev, believes. The official said that "this would exert pressure on the budget and, probably, on banks if debtors fail to pay off their loans".

For the time being, we are facing a slower growth, rather than a recession, a number of officials and experts, including from abroad, have said. The continuity of the strong economic recovery witnessed over the past years is a good signal, but there are concerns generated by the decrease in the economic growth from 8.3 per cent in the first three months of 2011 to 5.3 per cent, whereas expectations for the last three months stand beyond this figure.

The end of year brought in upsetting signals. In December, the industrial output decreased by 3.7 per cent against the same months of 2010. Road hauliers announced a 29-per-cent fall in shipments. The construction sector saw its index plunging to minus 2.5 per cent in late 2011, despite the fact that in the first half of the year the index stood at plus 2.5 per cent. The pace of exports increase halved by the end of the year, in spite of the fact that in the first half of 2011 it exceeded by 44 per cent the level reached in 2010.

The slowdown in the economic growth will become increasingly obvious in 2012. Both the Moldovan authorities and the IMF are expecting a 4-per-cent growth compared with the 4.5 per cent as forecast before. "A more optimistic scenario would add 1.5-2 per cent to the growth. This scenario is absolutely realistic and achievable in certain circumstances and, vice versa, a pessimistic scenario would bring in a decrease of 1.5-2 per cent," Deputy Premier and Economics Minister Valeriu Lazar has said recently. The economic growth will range between 2.6 and 6 per cent this year.

It is definite that all indexes will slacken. There will be no such strong economic growth as in 2011. There is no way for exports to surge by 40 per cent every year. Moldova has an open economy and hence developments in the partner countries influence it.

Should we be concerned by this economic deceleration? Will we see a repeat of the 2009 scenario, when we passed through the gravest crisis in the last decade?

Both the authorities and international financial institutions speak in one voice: there will be no repeat of the 2009 crisis. Things stood one way back then and they are standing differently in 2012. Public finances are much healthier. In 2009, the deficit of the national public budget accounted for 6.3 per cent of GDP, whereas in 2012 it will stand at 0.9 per cent. Remittances play a less important role in the growth equation. In 2008, they accounted for 33 per cent of GDP, whereas in 2011 their weight went down to 21 per cent. Currency reserves exceeded by far the level recorded in the pre-crisis year 2008, reaching 2 billion lei. This buffer "for hard times" was restored. The indexes of self-sufficiency of the bank's capital and of liquidity in the bank sector are rather high. These factors will help soothe eventual economic shocks.

A committee for financial stability was set up, which made it possible for the main institutions in charge of managing financial risks (the National Bank, the National Commission of the Financial Market, the Agency for Guaranteeing Deposits, the Finance Ministry and others) to have a single coordination body. "It can be compared to a committee for emergencies. The headway made by the committee for financial stability in terms of legislative basis and organizational issues is obvious," the IMF's permanent representative to Chisinau, Tokhir Mirzoev, has said.

This year over 2 billion lei will be invested in infrastructure, which is an anti-crisis measure as well.

Can it be that we face the same situation as three years ago, when we were told that Moldova is a stability oasis? There are several unknown factors. The situation in the eurozone may aggravate at any time. The burden of the sovereign debts crisis is wearing down the economies of such countries as Greece. Nobody knows how the agricultural sector will evolve, given that last autumn's draught and this winter's frost badly hit a good deal of crops. There are drawbacks in our structural reforms, which are supposed to improve the business environment and to boost competition. In addition, many see the protracted political crisis as a factor that will impact negatively the economy.

Although no anti-crisis programme has been drafted, there is a set of actions stipulated in various documents of well-structured policies providing for a range of scenarios. It is important to stimulate various situations, so that we know how to act, should the situation deteriorate.

Moldova's economy will go the same way of slowdown that can be seen in the eurozone and in eastern economies. The slowdown cannot be avoided. It has been felt for several months already. But even the most pessimistic forecasts make no reference to a repeat of the 2009 crisis.