Third year of weak economic growth as energy shock hits again

Weak start to 2025

In early 2025, Moldova was hit by another energy shock. Russia cut off gas to the Transnistrian (TN) region, which supplied cheap electricity to the Right Bank. As a result, Moldova now procures more expensive electricity from Romania. This has led to a sharp increase in electricity tariffs. At the same time, gas import prices rose due to mismanagement in the government’s procurement strategy (see Issue 87).

The energy shock had a direct impact on GDP, inflation, current account and national budget. Real GDP declined by 1.2% yoy in the first three months of 2025. Full-year growth is projected to be around 1%, indicating only a small recovery since the strong decline in 2022. On the supply side, the main growth driver is expected to come from the agricultural sector, which is projected to recover after the 2024 drought. However, risks remain due to late frost in early 2025. The services sector is also expected to continue growing, and the industrial sector is likely to pick up due to investments initiated in 2024.

Energy prices push inflation back up

After inflation had returned to the target range of 5% (± 1.5) in 2024, the energy shock early 2025 pushed it back up. Inflation increased to 9.1% in January and moderated slightly to 8.2% in June. In response, the National Bank of Moldova (NBM) raised its policy rate from 3.6% in Dec-24 to 6.5% by Feb-25. The rate has remained unchanged since then. Inflation is expected to return to the target band in the last quarter of the year.

Current account deficit is widening further

Moldova’s external position deteriorated during the first three months of 2025. The current account deficit widened significantly, as exports fell by 12% yoy and imports increased by 18% yoy.

This again, is largely linked to the energy shock. One factor contributing to the increase in imports was the reclassification of electricity flows: previously, the electricity received from the TN region was not recorded as imports, whereas electricity now sourced from Romania is formally registered as such. On top, imports from Romania now are more expensive than previous imports from the TN region. This resulted a 500% increase in recorded electricity imports, contributing over +4.3 pp to the total import growth of 18%. Gas imports accounted for +5.5 pp and vehicle imports +1.4 pp.

This development follows an already substantial current account deficit of 16% of GDP in 2024. This was primarily driven by a large goods trade deficit, as exports fell by 12% in 2024. Meanwhile, the services balance remained in surplus (5% of GDP), supported by strong ICT, transport, and travel service exports. Although remittances and other transfers provided some support, easing external pressure, they were also slightly lower than in previous years.

Fiscal policy turns more expansionary

In response to rising energy costs and following the confirmation of the EU Growth Plan for Moldova, the government increased the 2025 budget deficit from 4.0% to 5.1% of GDP under its “Budget +PLUS” initiative. The amendment added MDL 8 bn (ca. EUR 400 m) in spending, an 9% increase over the original budget expenses. Roughly half of the additional expenses is related to the energy shock and is intended to compensate households for higher energy costs.

Unlike during the 2022/2023 heating season, when heating costs where subsidised through in-bill support, the 2024/2025 approach uses targeted cash transfers, which is decoupled from energy consumption. In parallel, an electricity compensation scheme has been introduced for the first time in the 2024/2025 season. This new scheme remains in-bill and covers the first 110 kWh of electricity consumption per month. It is EU-funded, non-targeted, and benefits all households regardless of income.

The remaining half of the “Budget +PLUS” is split between MDL 2 bn for infrastructure projects and other allocations to debt servicing and small-scale social programs.

In Jul-25, Parliament approved a second budget amendment, increasing both revenues and spending by MDL 648 m. On the revenue side, the increase is primarily driven by higher expected VAT receipts. Around half of the additional spending is allocated to a one-time support payment for schoolchildren. While this helps households in the short-term, it shows the consumption-oriented focus of current fiscal policy.

EU Growth Plan offers medium-term potential

The Growth Plan for Moldova from the EU (2025–2027) provides a Growth and Reform Facility totalling EUR 1.9 bn (EUR 385 m in grants and EUR 1.5 bn in concessional loans) to promote medium-term growth. Disbursements are tied to a reform agenda covering seven priority areas focused on economic competitiveness and governance. Funds are disbursed in tranches, conditional on reform progress, and based on bi-annual reports by the Moldovan government. Major disbursements are expected in Dec-26 and Dec-27. Therefore, the macroeconomic impact is expected to be limited in 2025, with implementation risks remaining in subsequent years.

Conclusion and outlook

Moldova’s economy is growing only slowly following the heavy recession of 2022. The energy shock of early 2025 has negatively impacted GDP, inflation, the current account, and public finances. The widening of both the fiscal and current deficit requires close monitoring, as a prolonged twin deficit could undermine macroeconomic stability and reduce the capacity to absorb future shocks. An effective implementation of the EU Growth Plan reforms could improve Moldova’s medium-term outlook.

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This newsletter is based on the 21^th issue of our Economic Monitor Moldova.