Forecast for aggregate growth in the EBRD regions in 2025 trimmed to 3.2 per cent

• 
  Forecast for aggregate growth in the EBRD regions in 2025 trimmed to 3.2 per cent
• 
  Uncertainty over global trade rules weighs on investment and production
• 
  Inflationary pressures persist, with interest rates declining more slowly than expected

The European Bank for Reconstruction and Development (EBRD) has revised its regional economic forecast for 2025 downwards by 0.3 percentage points relative to its September 2024 outlook. Growth across the economies where the Bank invests is now expected to average 3.2 per cent this year, before picking up to stand at 3.4 per cent in 2026, according to its latest Regional Economic Prospects report.

That downward revision stems primarily from weaker external demand in central Europe, the Baltic states and south-eastern EU countries. It also reflects the ongoing impact of conflicts and the slow pace of reform in the southern and eastern Mediterranean (SEMED) region.

Ukraine entered 2025 facing weaker economic performance and rising inflation. The Bank has revised the country’s forecast for this year downwards, as Russia’s attacks on electricity infrastructure are continuing to hamper production. Ukraine’s GDP growth is expected to reach 3.5 per cent in 2025, before strengthening to stand at 5.0 per cent in 2026, on the assumption that a ceasefire is in place by the end of 2025.

The new report, entitled “Weaker momentum amid fragmenting trade and investment”, highlights subdued global growth momentum and a persistent gap between the performance of advanced European economies and that of the United States of America.

It cites growing uncertainty surrounding potential increases in tariffs on US imports and retaliatory measures by trading partners. The heightened uncertainty alone is enough to discourage investment, weaken production and disrupt global supply chains, according to the report. Looking beyond uncertainty, the short-term impact of tariffs and trade restrictions on individual economies will depend on whether tariffs are applied universally or just to selected trading partners.

A scenario in which the United States raises tariffs on all imports by an additional 10 percentage points could reduce GDP in the EBRD regions by 0.1-0.2 per cent in the short term. While Jordan, the Slovak Republic, Hungary and Lithuania are some of the EBRD economies that are most vulnerable to such measures owing to their overall trade exposure to the US market, the report shows that Bulgaria, Slovenia and Romania are the most exposed to recently announced increases in US tariffs on steel and aluminium.

The economic analysis also indicates that if tariffs are applied selectively, economies with privileged access to the US market could benefit from trade diversion and increases in foreign direct investment (FDI).

Rising geopolitical tensions have led to a sharp decline in trade and FDI between rival geopolitical blocs, centred around the US-led West and the Chinese/Russian-led East. At the same time, FDI from China and the United States into “connector” economies such as Uzbekistan, Vietnam, Mexico, the United Arab Emirates and Saudi Arabia has surged, the report notes.

The EBRD points out that regional inflation has declined, offering some relief. Indeed, inflation has fallen from a peak of 17.5 per cent in October 2022 to 5.9 per cent in December 2024. Nonetheless, inflation remains more than 1 percentage point above its pre-pandemic average, with price pressures increasingly driven by demand-side factors such as looser fiscal policies and rapid wage growth.

“While inflation has dropped notably, the sources of inflationary pressures have shifted,” says Beata Javorcik, the EBRD’s Chief Economist. “Fiscal policy and wage dynamics now play a much greater role, and the path ahead requires careful policy calibration to ensure a stable growth trajectory.”

Although the moderation of inflation has been largely in line with expectations, the report flags the fact that interest rates – including rates in the United States – have been declining more slowly than previously anticipated.

Furthermore, the aggregate fiscal balance in the EBRD regions deteriorated by around 2.2 percentage points between 2017-19 and 2024 and is expected to stabilise at about this level in 2025 and the medium term. This trend mirrors similar fiscal challenges in the United States, France, Germany and other large economies.

Government deficits are being exacerbated by a combination of factors, including (i) the resurgence of industrial policies amid the fragmentation of trade and investment, (ii) the fiscal burden of ageing populations and (iii) rising defence expenditure. Defence spending in the EBRD regions has nearly doubled over the last decade, increasing from 1.8 per cent of GDP in 2014 to 3.5 per cent in 2023, with further rises expected.

While many emerging markets in the EBRD regions used earlier periods of low interest rates to extend debt maturities and increase the share of local currency borrowing, some economies remain particularly vulnerable to external shocks. Countries such as Lebanon, Mongolia and Tajikistan have large shares of both short-term and US dollar-denominated government debt, making them more exposed to shifts in global financial conditions.

Regional growth projections

Growth in central Europe and the Baltic states is forecast to reach 2.7 per cent in 2025 and 2.8 per cent in 2026, supported by resilient labour markets. However, the projection for this year has been revised downwards owing to the slower-than-expected recovery in advanced Europe, which has dampened manufacturing, exports and investment.

In south-eastern EU countries, growth slowed to 1.5 per cent in 2024, with weaker-than-expected performance being driven by sluggish external demand, a slowdown in investment and reduced fiscal stimulus. Growth is expected to recover to stand at 2.1 per cent in 2025 and 2.4 per cent in 2026.

Growth in the Western Balkans is expected to remain stable at 3.6 per cent in both 2025 and 2026. The downward revision to the forecast for this year reflects weaker external demand and smaller domestic spillovers from public investment projects amid tight labour markets.

Central Asia saw growth moderate to stand at 5.4 per cent in 2024, down from 5.7 per cent in 2023, with the Kazakh mining sector stagnating and Mongolia experiencing extreme weather conditions. Growth is expected to rebound to 5.7 per cent in 2025, before moderating to stand at 5.2 per cent in 2026.

In eastern Europe and the Caucasus (EEC), economic growth slowed to 3.9 per cent in 2024 as the boost from intermediated trade and inflows of labour and capital waned. Growth is expected to moderate further in 2025, reaching 3.6 per cent, before picking up to stand at 4.3 per cent in 2026.

Ukraine’s 2025 forecast has been revised downwards by 1.2 percentage points owing to damage to electricity infrastructure caused by Russia’s attacks. GDP growth is projected to average 3.5 per cent in 2025, before rising to 5.0 per cent in 2026 if a ceasefire is in place by the end of this year.

Growth in Türkiye moderated to stand at 2.9 per cent in 2024, down from 5.1 per cent in the previous year, reflecting the tightening of monetary policy with the aim of lowering persistently high inflation. Growth is expected to recover to 3.0 per cent in 2025 and 3.5 per cent in 2026 as inflation declines and real wages rise.

In the southern and eastern Mediterranean, growth is estimated to have averaged 2.5 per cent in 2024, affected by conflicts and slow progress with reforms. Growth is expected to recover to 3.7 per cent in 2025 and 4.1 per cent in 2026.

READ THE FULL REPORT

DOWNLOAD THE PRESENTATION

Table 1. Real GDP growth, in per cent per annum

	Actual		Prelim.	Forecast (Feb’25)		Revision since Sep’24
	2023	2024 Jan-Sep	2024	2025	2026	2024	2025
EBRD regions	2.7	2.7	2.7	3.2	3.4	-0.1	-0.3
Central Asia	5.7	5.2	5.4	5.7	5.2	0.4	-0.2
Kazakhstan	5.1	4.1	4.5	5.2	4.5	0.5	-0.3
Kyrgyz Republic	6.2	8.4	9.0	7.0	6.0	0.0	0.0
Mongolia	7.4	5.0	5.0	6.7	6.0	0.0	-1.3
Tajikistan	8.3	8.4	8.4	7.0	5.7	0.4	0.0
Turkmenistan	6.3	6.3	6.3	6.3	6.3	0.0	0.0
Uzbekistan	6.3	6.6	6.5	6.0	6.0	0.5	0.0
Central Europe and the Baltic states	0.3	1.8	2.0	2.7	2.8	-0.3	-0.5
Croatia	3.3	3.8	3.8	3.0	2.6	0.2	0.0
Czechia	-0.1	0.9	0.9	1.9	2.4	-0.2	-0.5
Estonia	-3.0	-1.2	-0.8	1.7	2.6	0.0	-0.8
Hungary	-0.9	0.6	0.5	2.0	2.8	-1.3	-1.3
Latvia	1.7	-0.5	-0.3	2.0	2.5	-1.2	-0.4
Lithuania	0.3	2.3	2.7	2.8	2.7	0.4	0.3
Poland	0.1	2.5	2.9	3.4	3.2	-0.3	-0.4
Slovak Republic	1.4	2.1	2.0	1.9	2.2	-0.3	-0.7
Slovenia	2.1	1.4	1.4	2.0	2.4	-0.1	-0.6
Eastern Europe and the Caucasus	4.4	4.7	3.9	3.6	4.3	0.2	-0.5
Armenia	8.3	5.9	5.7	5.0	4.5	-0.5	0.2
Azerbaijan	1.1	4.7	4.1	3.0	2.5	0.3	0.3
Georgia	7.8	9.9	9.5	6.0	5.0	3.0	1.4
Moldova	0.7	0.6	0.5	2.0	3.8	-2.7	-1.5
Ukraine	5.3	4.0	3.0	3.5	5.0	0.0	-1.2
South-eastern EU	2.3	1.6	1.5	2.1	2.4	-0.4	-0.6
Bulgaria	1.9	2.3	2.3	2.4	2.8	0.1	-0.5
Greece	2.3	2.3	2.3	2.3	2.3	-0.1	-0.3
Romania	2.4	0.8	0.7	1.8	2.4	-0.7	-0.8
Southern and eastern Mediterranean	2.7	2.5	2.5	3.7	4.1	-0.3	-0.2
Egypt	2.9	2.7	2.9	4.2	4.7	-0.3	-0.3
Jordan	2.7	2.3	2.2	2.3	2.6	0.0	-0.3
Lebanon	-0.2	-1.0	-5.7	2.0	3.0	-4.7	0.0
Morocco	3.4	3.1	3.0	3.6	3.4	0.1	0.0
Tunisia	0.0	1.0	1.2	1.8	2.2	0.0	0.0
Turkiye	5.1	3.2	2.9	3.0	3.5	0.2	0.0
Western Balkans	3.5	3.6	3.5	3.6	3.6	0.0	-0.1
Albania	3.9	4.0	3.9	3.7	3.7	0.4	0.0
Bosnia and Herzegovina	2.0	2.5	2.5	2.8	3.0	-0.3	-0.2
Kosovo	4.1	4.6	4.3	4.0	4.0	0.3	0.0
Montenegro	6.3	3.1	3.1	2.9	3.0	-0.7	0.0
North Macedonia	2.1	2.6	2.4	3.0	3.0	0.2	-0.5
Serbia	3.8	4.0	3.8	4.0	4.0	0.0	0.0
Memo: Egypt (fiscal year to June)	3.8	2.7	2.4	3.6	4.6	-0.3	-0.4
Memo: EEC excl. Ukraine	3.4	5.4	5.0	3.8	3.4	0.4	0.3
Memo: Belarus	3.9	4.5	4.0	2.5	2.5	-0.2	0.0
Memo: Russia	4.1	4.2	4.1	1.5	1.5	0.5	0.0

 

Source: Eurostat for EU economies, national authorities and EBRD.

Note: Weights are based on values for GDP in 2022 at market exchange rates. In the case of 2024 growth, “revision since Sep ‘24” refers to the difference between estimated growth in 2024 and the forecast made in September 2024. The table also includes forecasts for Belarus and Russia, notwithstanding the fact that Russia and Belarus have had their access to Bank resources suspended under Article 8.3 of the Agreement Establishing the EBRD.