Newsletter Issue 63 | January – February 2021

After twin shocks: economy expected to recover in 2021

2020 was a challenging year for the Moldovan economy. In addition to the impacts of the COVID-19 crisis, the country was affected by a severe drought in the agricultural sector. Based on our macroeconomic model, we forecast a decline in GDP of 6.7% for 2020 – its deepest downturn in over a decade. Out of this, the agricultural sector accounts for one-third of the GDP decline. Besides agriculture, the economic decline was mainly driven by a sharp drop in private consumption. Despite announcing a range of fiscal stimulus measures, public spending actually went down in 2020, even though more options for external financing in the form of pandemic relief and emergency loans became available. Nevertheless, we predict that the economy will grow by 4.5% in 2021, as consumption and investments pick up. Meanwhile, the political future remains uncertain after PM Ion Chicu resigned and an interim government took over the responsibilities of the administration. In this situation, it remains unclear whether Moldova will receive external funding through a new IMF programme amounting to USD 558 m.

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