Moldova's economic growth has slowed down in recent years due to domestic challenges, declining competitiveness and external shocks. A report by the Expert-Grup Center states that in 2014-2023 the average annual growth amounted to only 2.2%, compared to 4.6% per year in 2004-2013.
The slowdown was driven by the growing comparison base, a shrinking population, extreme weather events, as well as external shocks, such as the COVID-19 pandemic, galloping global inflation and Russian military aggression in Ukraine, IPN reports with reference to the Expert-Grup report.
According to the cited source, geopolitical tensions, in particular the war in Ukraine, have caused significant disruptions in trade routes and increased logistical costs for Moldova. This geopolitical instability introduces considerable economic uncertainty and has a negative impact on trade activities.
Moldova's economic performance is closely linked to the economic situation of its main trading partners, primarily the European Union. Economic downturns or instability in the region can lead to significant decreases in Moldova's export revenues and overall economic stability.
The report also shows that Moldova's limited fiscal space is a critical domestic weakness. It undermines public investment and affects the government's ability to respond to economic challenges and contribute to long-term growth.
While Moldova's financial sector has strengthened considerably since the 2014 banking fraud and has remained resilient to the myriad crises, it remains exposed to vulnerabilities. The increased share of foreign capital in the banking sector has contributed to improved governance, but some risks remain.
Although non-bank financial institutions have expanded, commercial banks continue to dominate, accounting for about 90% of financial sector assets. The banking sector is highly concentrated, with assets of the top 5 banks accounting for 86% of the total.
