Resistant consumption helped maintain the developing economies of Europe and Central Asia last year, but a toxic combination of external demand with spikes, persistent inflation and structural weaknesses now threaten to push the region to a low growth trap.
According to the 2025 Spring Economic Update of the World Bank, published on Wednesday, regional growth is expected to decrease to an average of 2.5% in 2025 and 2026.
If we exclude Russia, the forecast improves modestly at 3.3%, still well below the 4% registered from 2010 to 2019.
From the subsequent recovery to a fragile base
After resisting global clashes with a stabilized growth rate of 3.6% in 2024, largely thanks to the resistance of consumption, an increase in remittances and an increase in real wages, the developing economies of the European region and Central Asia (ECA) now face a much darker horizon.
Much of the regional deceleration results from a confluence of adverse factors in the world and the national level. The weakening of commercial flows with the European Union, persistent uncertainty in world politics and general slowdown in the main markets are having strong pressure on open economies with limited amortide.
“Global uncertainty, geoeconomic fragmentation and weak expansion among the main commercial partners are making it difficult to support this growth,” said Antonella Bassani, vice president of the CEA World Bank.
What countries are slowing down and why?
World Bank data shows that Central Asia, CEA’s subregion with faster growth, is not immune.
Its growth is expected to decrease strong levels from 2024 to 4.7% by 2025-26, dragging reducing the expansion of the oil sector in Kazakhstan, the fall in exports and the reduction of shipping flows.
Russia faces strong slowdown, with projected growth of only 1.3%, almost three times slower than in 2024. The imposition of more rigorous sanctions, the increase in loan costs and the decrease in energy prices are aggravating structural restrictions, threatening to further avoid its economy from the previous trajectory to the pandemic.
It is expected that Turkey, which is going through a delicate process of economic rebalancing, records an expansion of 3.3%, which represents a remarkable improvement compared to recent years, but continues to not know its long -term average.
The prospects for Poland remain slightly more optimistic, with a projected growth of 3.1% driven by the investment supported by the European Union, although still below its average before 2020, due to the fragility of the euro area and persistent risks in terms of commercial policy.
In Western Balkans and the South Caucasus, growth must be moderate to 3.4%and 3.5%, respectively, while the recovery of Ukraine should decrease significantly, with a projected growth of 2%, in a context of persistent challenges related to war.
Inflationary pressures change monetary policy
Price pressures are returning. Inflation in the CEA region increased to 5% per year in February 2025, compared to 3.6% in mid -2024. The determining factors? Food and services prices, restrictive labor markets and the strong demand for consumers. This has forced several central banks to suspend the cuts in the rates or even reverse the course by complicating any monetary growth support for growth support.
The World Bank warns that inflation can continue to be rigid, fueled by internal risks, such as expansionist fiscal policies and credit growth.
The disturbances on the supply side, from the volatility of raw materials to climate -related clashes, can further amplify this dynamic.
ADVERTISINGWhy are reforms more important than ever
In addition to cyclical challenges, the report dedicates a significant part to the structural reforms necessary to relaunch long -term growth.
“To achieve a stronger long -term economic expansion, it is essential that the countries of the region accelerate internal structural reforms that promote a dynamic and innovative private sector, business spirit and the adoption of technologies,” Bassani said.
A central issue is the fundamental role of business innovation, productivity and dynamism of young companies.
“Innovation and experimentation in companies are essential to increase productivity and a previous requirement to achieve and maintain a high performance state,” said Izvorski, chief economist of the World Bank of Europe and Central Asia.
ADVERTISINGThe Bank argues that more attention should be paid to innovative companies in the initial phase than to the broader sector of small and medium enterprises (SME).
These companies generate employment and have a growth potential, but face a difficult environment with underdeveloped capital markets and limited access to long -term financing.
The lack of competition is also suffocating progress. Public companies continue to dominate many sectors, excluding more agile private companies.
The World Bank points out that political decision makers should give priority to the elimination of entry barriers, the increase in R&D expenses and the integration of global technologies to allow companies to pass from mere production centers to foreign supply chains.
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Without urgent reforms, the risk is stagnation. The World Bank warns that countries that do not modernize its economic personnel do not extend their tax base and do not invest in human capital can have difficulty maintaining modest growth.
For many, the budget space is decreasing, which limits the margin of maneuver for stimuli as public expenditure needs increase.
To avoid stagnation and approach to the state of a high -performance country, the region must give priority to business innovation, competitive markets and reforms that increase productivity. Without these reforms, the promise of convergence with the most advanced economies runs the risk of being increasingly out of reach.
