May 10 (SeeNews) - Moldova's economy is expected to grow by 1% in 2022, the European Bank for Reconstruction and Development (EBRD) said on Tuesday, lowering its March forecast for 2% economic expansion.
"Moldova’s fragile institutions are struggling to cope with the influx of Ukrainian refugees and trade disruptions caused by the war on Ukraine," the EBRD said in the May edition of its Regional Economic Prospects report.
In EBRD's view, the recent additional rise of energy and grain prices will keep inflation at elevated levels for longer. Moldova's consumer prices rose 22.16% year-on-year in March, compared to 18.52% in the previous month, latest data from the National Bureau of Statistics show.
According to the EBRD, a rise in gas prices are a major risk for Moldova, as they contributed to a current account deficit of 11.6%of GDP in 2021, prompting central bank interventions on the foreign exchange market.
The EBRD noted that the International Monetary Fund has reached a staff-level agreement to boost funding for Moldova by $267 million.
"International support will help alleviate some of the immediate financing concerns, but downside risks from high inflation and the impact of the war on Ukraine remain substantial," the EBRD said.
For 2023, the EBRD sees Moldova's economy expanding at 3.5%, the same growth rate as predicted in March.
In 2021, Moldova's gross domestic product (GDP) rose 13.9% after a 7% contraction in the previous year resulting from the coronavirus pandemic.
At the end of March, Moldova's economy ministry said that the country's GDP will grow by just 0.3% in 2022, with the slowdown mostly due to the war in Ukraine and disruption of global supply chains.
The Eastern Europe and the Caucasus region, which also includes Armenia, Azerbaidjan, Georgia and Ukraine will see its GDP contracting 18.4% in 2022, according to the EBRD report. In 2023, the EBRD expects the region's GDP to rise by 17.5%.
GDP growth in all EBRD regions is expected to decelerate to 1.7% in 2022, down 0.6 percentage point compared with forecasts released in late-March, the bank said. Growth in these regions is expected to recover to 4.7% in 2023.
All forecasts for this year and next are vulnerable to major downside risks in the event that the scale of the war expands or the flow of exports of gas or other commodities from Russia is more restricted, the EBRD noted. Should gas supplies be further disrupted, for example, output per capita in the EBRD regions in 2022 could be 2.3% lower than the baseline scenario and 2% lower in 2023.