Moldova’s economy edged up by a modest 0.7% in 2023 (chart), reversing only a small part of the 4.6% contraction caused, in 2022, by the scarce and expensive energy and the war in Ukraine.

The detailed picture shows a much bleaker state of Moldova's economy: most of the key sectors are still shrinking and the war in Ukraine defers structural reforms that require a more consistent contribution of foreign investors.

The value added generated by Moldova’s agriculture soared by 32% in 2023 contributing 2.6 percentage points (pp) to the overall GDP growth. This was only a recovery after the weak harvest that dragged the sector down by 26% in 2022, contributing a negative 2.5pp  to the year’s 4.6% contraction.

Filtering out the volatile component of agriculture, Moldova’s economy contracted by 2.2% in 2022 and by only 1.9% in 2023 — which is only a marginal improvement and better illustrates the situation of the country’s economy.

Farmers have been on the streets for months complaining about the low prices on the market and still expensive inputs and high interest rates putting their businesses at risk.

The discrepancy between the bullish statistics and the farmers’ dire situation may be explained by the overly optimistic 11.6% statistical decrease in the prices paid by farmers for their inputs — a striking element used by the statistics bureau that comes against the reality of expensive fertilisers, fuels and interest. Another relevant aspect is the wide disparity between larger farming groups (such as Trans-Oil) and smaller farmers that depend on intermediaries for nearly anything from inputs to distribution and sale.

In 2023, very few sectors of Moldova's economy posted advances in terms of value added: agriculture, the budgetary sectors and utilities (helped by subsidies). The sectors of ITC and HoReCa stood out with annual advances of 7.5% and 26% contributing 0.5pp and 0.3pp to the overall GDP growth.

The value added generated by manufacturing plunged by 11.6% after the 4.1% decline in 2022.

In construction, the annual decline also steepened from 9.7% in 2022 to 13.8% in 2023.

The sector of services to households kept shrinking in value-added terms, by 3.5% in 2023 after 3.3% in 2022.

On the domestic demand side, the consumption contracted (by 0.8%) in 2023 and the gross fixed capital formation plunged even more (-2.3%).

The contribution of Moldova’s net import of goods and services (roughly one quart of its GDP) to the economic growth was positive 5.8pp —  meaning that net imports contracted, allowing domestic demand (as weak as it was) to absorb more goods and services produced internally.

What happened is that the better crops in agriculture improved the country’s trade balance so we can not conclude (positive) substitution of imported goods with goods produced locally.