World Bank sees Moldova's economy shrinking 5.2% in 2020 due to COVID-19

For 2021, the World Bank sees Moldova's gross domestic product (GDP) bouncing back to 3.5% growth, lower than the 4% increase projected in June, the bank said in its Europe and Central Asia Economic Update Fall 2020 report .

COVID-19 has drastically deteriorated the outlook for Moldovan economy with a significant recession expected in 2020, the bank said. At the same time, weaker economic growth in the EU combined with the effects of the lockdown is expected to lead to significant economic contraction of Moldova's GDP in 2020.

Beyond 2020, the high uncertainty on the duration of the pandemic and on its economic and social ramifications could further constrain firms, workers and households, hampering the recovery. If downside risks materialize, reduced fiscal space may limit the capacity for further countercyclical measures, the global lender added.

While uncertainty remains, key components of aggregate demand are expected to suffer significant declines. Assuming no additional restrictive measures domestically and more favorable external conditions in the region, a slow upturn of the economy is envisaged starting in late 2020/early 2021, the World Bank said.

In the medium term, growth is expected to stabilize below potential as uncertainty weighs in on economic activity, while the current account deficit is projected to remain higher than historical averages as external demand and remittances remain subdued, the bank said.

Falling disposable income, large output gap, low energy prices along with moderate appreciation, will outweigh the bad agricultural yield and accommodative fiscal and monetary inflationary pressures. Fiscal deficits are also expected to remain higher than historical averages in the 2020-21 period.

According to the World Bank, poverty is expected to increase as Moldovan households grapple with the effects of the COVID-19 including loss of employment and earnings, a reduction in remittances receipts and the return of the most vulnerable migrants due to worsening economic situation abroad.

The scaling up and modification of social interventions, including through increased support to vulnerable groups and extension of unemployment benefit coverage to returning migrant workers and former informal sector workers, is likely to temper the effects of the crisis on poverty. However, social protection might need to be enhanced over the medium term to minimize the residual effects of the COVID-19, the World Bank noted.

Moldova's economy expanded by 3.6% in real terms in 2019, driven mainly by wholesale and retail trade, according to finance ministry data.

(1 euro = 19.8975 Moldovan lei)