EBRD lowers 2025 growth forecast due to trade risks and slowing investments.
The European Bank for Reconstruction and Development (EBRD) has downgraded its growth forecast for 2025, projecting a 3.2% increase in GDP across its regions, a reduction of 0.3 percentage points from its previous estimate. The bank cites slowing investment, trade uncertainties, and weaker external demand as key factors affecting the economic outlook.
Economic Outlook Revised as Global Risks Mount
In its latest report, the EBRD highlights several global challenges reshaping economic growth in its regions. These include geopolitical tensions, inflation, and trade disruptions, which are weighing on economies in Central and Eastern Europe, the Balkans, and beyond. The revised forecast reflects the impact of these risks, leading to slower-than-expected growth across multiple areas.
- Central and Eastern Europe: Economic growth in central Europe and the Baltic states has been downgraded to 2.7%, a 0.5-point reduction. A weaker-than-expected recovery in advanced Europe has dampened manufacturing, exports, and investment.
- Southeastern Europe: The EBRD now expects growth in southeastern Europe to slow to 2.1%, down by 0.6 points, largely due to weak external demand and reduced investment.
- Eastern Europe and the Caucasus: The post-pandemic trade boom is fading, with a revised 2025 forecast of 3.6%, a decrease of 0.5 points.
Despite these challenges, Central Asia remains the fastest-growing region, with the growth forecast slightly revised to 5.7%. This is due to slower activity in major economies like Kazakhstan and Uzbekistan, but countries like Kyrgyz Republic and Tajikistan are expected to see stronger growth.
Trade Tariffs and Global Investment Shifts
Trade uncertainty, particularly rising US tariffs, has become a central risk to the region’s economic outlook. The EBRD estimates that a potential 10% increase in US tariffs on imports could reduce GDP across its regions by up to 0.2%. Countries with strong trade ties to the US, including Slovakia, Hungary, and Lithuania, are particularly vulnerable, while countries like Jordan, Egypt, and Bulgaria may face significant pressures due to US tariffs on steel and aluminum.
On the other hand, countries that maintain trade relationships with both Western and Eastern blocs, such as Uzbekistan, Vietnam, Mexico, UAE, and Saudi Arabia, are benefiting from increased foreign investment as global supply chains shift.
Inflation Eases But Remains Above Pre-Pandemic Levels
Inflation in EBRD regions has eased since its peak in late 2022 but remains above pre-pandemic levels. As of December 2024, inflation stood at 5.9%, down from 17.5% but still more than a percentage point higher than before the pandemic. The sources of inflation have shifted, with slower declines in interest rates, particularly in the US, adding complexity to the economic outlook for emerging markets.
Beata Javorcik, the EBRD’s Chief Economist, noted, “While inflation has dropped notably, the sources of inflationary pressures have shifted. Slower-than-expected declines in interest rates are adding complexity to the economic outlook.”
Looking Ahead: Slower Growth for EBRD Regions
As the global economic landscape continues to evolve, the EBRD’s revised forecast reflects a more cautious outlook for 2025. Slowing external demand, geopolitical risks, and trade uncertainties are expected to dampen growth across much of the bank’s regions. However, some areas, particularly in Central Asia, remain resilient and are poised for continued expansion.