April 11 (SeeNews) - Moldova's economy is expected to contract by 0.4% in 2022, mostly due to the war in Ukraine, the World Bank said, reversing its previous forecast for 3.9% growth.
"Growth is expected to be curtailed by the unfolding crisis in Ukraine despite its swift recovery from Covid-19. Medium term growth hinges on the containment of the war and of the pandemic, as well as a successful management of the refugee crisis and sustained fiscal support," the World Bank said in its Europe and Central Asia Economic Update Spring 2022 report published on Sunday.
The unfolding war in Ukraine is expected to affect the economy through the trade and remittances channels as well as prices and financial uncertainties, the lender also said.
In the bank's view, even under an optimistic scenario of the resolution of the conflict in Ukraine and reestablishment of the trade routes, subsiding pandemic risks, a continuation of a broad-based government reform program, and sustained fiscal impulse, growth is expected to substantially decelerate to minus 0.4% in 2022.
However, in an optimistic scenario of de-escalation of the situation in Ukraine, growth is expected rebound to 3.8% in 2023 and around 4.4% in 2024. Also, as the economy gains steam and the trade routes are reestablished and higher global energy and food prices subside, the current account deficit is expected to improve, according to the report.
High inflationary pressures will persist throughout 2022 with the inflation rate remaining well above the upper bound of the central bank target corridor of 5% (plus/minus 1.5%), the bank added. Also, the fiscal deficit in the medium term is expected to remain higher than in pre-Covid-19 years, as the economy will need to protect the disposable income of the population from increasing prices, support the refugees and increase investments as the ambitious reform program gains steam.
As a result, public debt is expected to increase, while remaining relatively low by international standards, the bank noted.
Given the recovery in the labour market and strong remittance receipts, poverty is expected to have decreased from 15.7% in 2020 to 10.8% in 2021. Impacts of the war in Ukraine, including higher food and fuel inflation, the potential for return migration and lower remittances, as well as a weaker labour market due to lower demand for exports, are forecast to lead to a stagnation in poverty of 10.9% in 2022, the bank concluded.
Moldova's economy ministry said in March that the country's economy will grow by just 0.3% in 2022 after expanding by 13.9% last year, with the slowdown mostly due to the war in Ukraine and disruption of global supply chains.
Also in March, the European Bank for Reconstruction and Development (EBRD) said that Moldova's economy is expected to grow by 2% in 2022. The bank lowered its November forecast for 4% economic expansion.
(1 euro = 20.028 Moldovan lei)