Economic expert Viorel Gîrbu for INFODEBIT: Astonishing economic growth in the first 9 months of 2019, which was not perceived however by the majority of the population

The national economy registered a robust growth during the first 9 months of last year. According to the estimates of the National Bureau of Statistics the Gross Domestic Product increased by 4.8% between January and September 2019. Although this growth can be described as a modest one, in the case of a poorly developed economy such as the country's economy it is still a success for the first three quarters of last year, given the political uncertainties associated with the electoral cycle which the Republic of Moldova passed through in 2019. Moreover, internal economic analysts and also several international organizations’ estimates indicate on a more modest rate of economic growth for the year 2019, of about 2.5-3.5%. The dynamics of the national economy growth for the first three quarters of 2019 continued the upward trend started in 2015, achieving the highest value for the last 5 years.

Chart description: GDP modification rate for the first 3 quarters, compared to the same period of the previous year.

From the perspective of factors responsible for this growth, the GDP structure in terms of expenditure repeats the trends attested in the previous year. Similar to 2018, the most important contribution to the GDP growth was made by gross capital of 3.3% (4% in 2018). This fact brings a good qualitative feature to the last year’s economic processes in the country's economy. Investments in fixed assets increased by 15.6% during the first 9 months of 2019, compared to the same period of the previous year, with foreign investments increasing the most, by 49%.

The value added in all sectors of the national economy increased between January and September 2019. The top 3 economic sectors with the largest contribution to the GDP growth remained the same as in the similar period of the last year, being represented by the construction sector (+1, 7%), the trade sector (+1.2) and the industrial sector (+ 0.6%). The impact of the positive evolution of the national economy on the welfare of the country's population during the first quarters of 2019, however, is not a significant one. The construction sector attracts about 5% of the total employed population of the country, while about 14% of the employed population are engaged in the trade sector and another 11% – in the industrial sector. On the other hand, the agricultural sector, which attracts about 39% of the country's employed population, recorded an economic growth of only 0.3% during the first three quarters of 2019.

The volume of production in the industrial sector increased during the first 10 months of last year by 3.4%, mainly influenced by the 4% increase in the production volume of the manufacturing industry. The processing industry holds the largest share, of over 80% of the industrial production value in the country. The economic activities with the largest contribution (over 5%) to the growth of the manufacturing industry have recorded divergent evolutions. The food industry, which contributes one-third to the value of the processing industry, increased by 7.7% in January-October 2019, compared to the same period last year. Manufacture of beverages representing more than 10% of the value of the manufacturing industry's production increased by 4%, while the manufacture of other non-metallic mineral products with a similar weight registered a decline of 7.9%. The highest decline of about 11.8% and 8.9%, respectively, was recorded during the first 10 months of last year in manufacturing textile products and garments, both representing over 10% of the production value of the country's manufacturing industry. Manufacture of vehicles, trailers and semi-trailers (of about 6% of the value of the manufacturing industry's production) is the economic activity that recorded the most dynamic evolution during the first 10 months of last year, the increase being of about 37.1% during the period January-October 2019, compared to the same period of the last year.

The trade volume with the rest of the world increased modestly by 2.2% during the first 10 months of last year, compared to the same period of 2018. The volume of foreign trade increased especially in trade with other states (+10,9%), the volume of trade with the EU states decreased by 0.6%, while the trade with the CIS countries increased modestly by 0.8%. Exports grew faster (+ 3.4%) compared to imports (+ 1.7%), which increased the level of coverage of imports of goods by exports by 0.8 percentage points. The deficit in foreign trade reached the value of over USD 2.5 billion at the end of October last year.

The annual inflation rate registered a value of 7.5% at the end of last year, being determined by the 12.4% increase in food prices. The prices of non-food goods and services provided to the population increased by 5.2% and 3.5% respectively. In the food category, mostly the prices of fruits (+ 52.4%), eggs (+ 37.3%) and vegetables (+ 20%) increased. Inflation, excluding products and services with regulated prices, constituted 9%, the mentioned category of goods and services acting as a factor of flattening the consumer price index.

The volume of the loan portfolio of the national banking system increased by 4.9 billion lei during the first 11 months of last year. The growth of the loan portfolio was due to 2 billion MDL for the purchase / construction of buildings; 1.6 billion lei for consumption and 0.7 billion MDL for trade. The lending of agriculture increased by only 0.4 billion MDL and the volume of credits granted to the industry decreased insignificantly. The slow growth of the national economy lending may be associated including with the increase, albeit insignificant, of the cost of borrowing. The weighted average interest rates on new loans increased from the beginning of 2019 to November of the same year by 9 basic p.p. for loans granted in national currency and 3 basic p.p. for loans granted in foreign currency. Loans granted for the purchase / construction of buildings and for consumption registered the biggest jump among the most important sectors of the loan portfolio during the period concerned, in the amount of 49.5% and 30.6% respectively. The volume of compromised loans decreased throughout the banking sector to 5% compared to 5.6% at the beginning of the year. The increase of the compromised loans share in the total volume of sector loans relates to the lending of the energy industry (+ 5.6 p.p), trade (+0.5 p.p.) and the non-banking financial sector (+0.8 p.p.).

Although the foreign trade deficit increased during the first 10 months of the year and the domestic execution of the national public budget indicated a deficit of over 1.5 billion MDL at the end of November last year, the average annual exchange rate of the national currency appreciated during the year 2019 compared to the average values of 2018 against EUR (+ 0.9%) and the Romanian leu (+ 2.8%), but depreciated by 10.3% compared to the Ukrainian hryvnia; 4.6% against the US dollar and 1% against the Russian ruble.

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