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Moldova's Crisis-hit Economy Seen Shrinking by 6.0% to 13% in 2009

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ANALYSIS by Kristina Belkina

CHISINAU (Moldova), June 16 (SeeNews) - "The situation is quite uncertain now. The IMF revises its forecast almost every month. I will keep for now the forecast made earlier. The most optimistic is a 6.0% [economic] fall in 2009 and the most pessimistic is minus 12% or 13%," Valeriu Prohnitchi, executive director of Moldovan independent think-tank Expert Grup, told SeeNews.

"Considering the latest developments, the Moldovan economy is moving towards the most pessimistic forecast," he added.

In the first quarter of the year Moldova’s industrial production fell by an annual 24.2%, constructions dropped by 36.8% and retail sales decreased by 4.3%, the country's statistics office said on Monday. Exports fell by 19.2%, while imports were down by 25.2%. Final consumption fell by 9.0% on the year in the first quarter, as household consumption decreased faster, by 10.2%.

"Consumption fell due to a decrease of remittances from the Moldovan migrant workers abroad. It has become clear that remittances have not been channeled into investments but into consumption," Marcel Chistruga, economic analyst at Chisinau-based non-governmental institute for development and social initiatives, IDIS Viitorul, told SeeNews. He forecasts an economic contraction of 9.0% in 2009, in the best-case scenario.

Remittances from Moldovans abroad sent via official channels decreased to $317.6 million (229 million euro) in January-April this year from $477.1 million a year earlier, the latest central bank figures showed.

"Moldova’s farm sector was the sole sector that rose in the first quarter, by more than 3.0%. I think it will continue to show a positive development and will influence to some extent the GDP [gross domestic product] growth in the second quarter. Thus, the contraction will not be so big," Iurie Gotisan, an independent analyst, told SeeNews. Gotisan expects the GDP to shrink by 6.0%-7.0% this year.

The European Bank for Reconstruction and Development (EBRD) expects Moldova's economy to contract by 6.0% in 2009, under its latest forecast. Last week, the International Monetary Fund (IMF) revised downwards its forecast on Moldova’s crisis-hit economy this year, to a contraction of 9.0% in real terms from 5.0% expected in April. IMF also said that it expects the country's current account deficit to remain large despite the rapid import contraction and a large external financing shortfall to emerge due to low capital inflows.

The fund urged Moldova to make an urgent budget rectification to bring about a better balance between government consumption and available resources. Unless the budget rectification and the legislative changes are implemented, the prospects for a deep and prolonged recession will continue to grow, the IMF warned.

"The country has no anti-crisis programme yet. No measures were implemented so far," Chistruga said. "In the short-term, we can hope for the start of a revival in Europe and then remittances will start growing, fuelling consumption and imports. But in the long-term, we have to restructure our economy," he added.

Gotisan agreed, adding that the government has to apply measures to stimulate exports and imports during the crisis.

Besides the economic crisis, Moldova has been in political stalemate since the April 5 parliamentary elections, in which the Communist Party won 49.48% of the vote - not enough to elect the president on its own. The country faces new parliamentary elections on July 29 after the new legislature failed to elect a new head of state in two attempts.

The fact that the country's GDP performed so poorly in the first quarter shows that the economic crisis started long before the political turmoil, meaning that the political crisis cannot be blamed for the economic downturn, Prohnitchi said.

Moldova's economy grew by a real 7.2% last year, faster than the 3.0% growth recorded in 2007.

($=0.7203 euro)