Shrinking wages put retail sales in Moldova under pressure, outlook remains uncertain

Shrinking wages put retail sales in Moldova under pressure, outlook remains uncertain
/ bne IntelliNews
By bne IntelliNews January 9, 2023

Moldova’s private consumption posted an average growth rate of 5.5% over the five-year period to 2021 (when it surged by 10%), but it was severely hit by the shrinking disposable income caused by both inflation and high energy bills in 2022. 

Sales dropped less than wages in 2022, but the potential for recovery in 2023 is hindered by the high energy prices faced by households, companies and the government. Politically, the war in Ukraine encouraged Moldova's authorities to speed up their EU accession plans — and in a similar way the economic slowdown caused by the war gives it no other chance but to accelerate economic reforms. 

The average retail sales (volume terms) in the 12-month period to October 2022 decreased by 0.6% y/y. The figure most likely further deteriorated in December, but it is still moderate in the context of rampant inflation of over 30% y/y. The wages, although rising at double-digit annual rates, could not catch up with the rising prices and households’ purchasing power consequently deteriorated. Wage remittances, the informal economy and savings cushioned the shock.

In October alone, retail sales in Moldova shrank by 3.3% y/y, posting a negative annual growth rate for the seventh month in a row.

Private consumption in Moldova started losing ground in April -- with a six-month lag compared to the plunge of the real wages hit by the rising inflation.

Thus, the retail sales in April-October increased by 23% y/y in nominal terms while the consumer prices (average inflation) increased by 32% y/y. During this time, wages increased by only 15% y/y over the period -- meaning that the households have already started using part of their savings to cope with the rising prices.

Regarding wages, they remained steady in real terms during 2021 but lagged behind prices since the first quarter of 2022 when inflation surged above 30% y/y. As of the third quarter of 2022, Moldovans’ wages were 13.4% smaller in real terms compared to the same period in 2021.


The outlook for 2023 remains bleak for Moldova's private consumption, even if the inflation is easing.

The average wage is expected to dwindle in real terms or stagnate at best, even if a certain overall economic recovery is possible. The high energy prices will keep companies’ budgets and payrolls under pressure.

Data

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