Economies across the European Bank for Reconstruction and Development’s (EBRD's) regions of operation are set to grow by 3.1% in 2025 and 3.3% in 2026, the development bank said on September 25, warning that persistent geopolitical tensions, rising US tariffs and mounting competition from China are clouding the outlook.

In the EBRD’s latest Regional Economic Prospects report, titled Under Pressure, the overall forecast for the regions spanning Emerging Europe, Central Asia, the southern and eastern Mediterranean (SEMED) and parts of Sub-Saharan Africa has been raised slightly compared to its May forecasts, but projections have been lowered for Central, Eastern and Southeast Europe. 

Overall, the development bank made a 0.1 percentage point (pp) upgrade for 2025 and a 0.1pp downgrade for 2026. However, the report from the bank points to widening gaps between Emerging Europe and other parts of its portfolio. 

In Central, Eastern and Southeast Europe growth forecasts have been downgraded for a number of countries compared to the EBRD’s May forecasts, with the steepest reductions in Slovenia, Hungary, Latvia and Estonia. 

The EBRD projects rapid growth in Central Asia, but a very modest expansion in Central European countries such as Hungary, Estonia and Slovakia. Source: EBRD.

“Our regions, including the new economies, are adapting to a world of tighter fiscal space, elevated trade policy uncertainty and more intense global competition,” EBRD chief economist Beata Javorcik said on the release of the report. 

“While growth prospects remain broadly stable, the divergence between emerging Europe and other regions underlines the importance of policies that can enhance resilience. Managing debt burdens, safeguarding investment and finding opportunities in new global supply chains will be critical to easing pressures and sustaining momentum.”

Tariff tensions

US tariffs on imports from EBRD economies jumped from 1.4% in the first half of 2024 to 4.0% a year later, according to the report. That has spurred front-loading of shipments to the US even as it dented some trade flows. 

Across the board, exports to the US increased by 8% y/y in H1. However, broken down by quarter, exports were very strong in Q1, but fell in the second quarter. Moreover, there are dramatic differences between countries. 

“From all our countries of operations exports to the US increased by 8% in the first half of 2025, which seems to have been driven by front-loading … The aggregate numbers hide differences in performance,” Javorcik said in an interview with bne IntelliNews ahead of the report’s release. 

“Kazakhstan has seen the biggest increase, driven by exports of silver and gold bullion bars. Hungary is next based on exports of pharmaceuticals and computers. At the other end of the scale, Slovenia’s pharmaceutical exports dropped by $830mn, equivalent to 1.1% of Slovenia’s GDP.”

The bank noted US imports of computers, phones, machinery and gold have all risen, in anticipation of further tariff hikes.

Competition from China

From a longer-range perspective Javorcik warned that the competitive landscape is becoming more challenging as China strengthens its manufacturing dominance.

“There has been a structural change in the nature of Chinese exports. They have become more similar to exports from our countries of operations. This means EBRD regions are in a less comfortable position than other emerging markets whose exports overlap with those of China,” she told bne IntelliNews. 

“China is a formidable exporter, exporting more than the US and Germany combined. EBRD countries with the greatest exposure to competition from China include the Czech Republic, Poland, Hungary, Turkiye, Slovakia, Estonia and Romania.”

China’s share of global manufacturing exports has surged to 25% in 2024 from under 10% in 2000, with its increasingly diversified shipments competing directly with emerging Europe and Turkey, though its import profile remains complementary to resource exporters.

“China is an export market for commodity reporters like Kazakhstan, and for the richest countries like the US, Japan, Canada and Singapore, said Javorcik. However, she added, “For our regions, it’s more of a competitor than an opportunity in terms of market access.” 

Another factor is that, “The situation in advanced Europe, and in particular Germany, is a big driver of the economic performance in Emerging Europe and North Africa.,” Javorcik added. “Countries that are particularly affected are smaller economies that tend to be more dependent on export demand. On top of the weak performance of advanced economies spilling over, we also see uncertainty related to the war [in Ukraine] and to the policies of other countries. Uncertainty kills investment.”

Fiscal strains 

Fiscal vulnerabilities remain another issue. Several economies, including Egypt, Jordan, Ukraine, Ghana, Kenya and Senegal, are grappling with high public debt and rising interest burdens.

“Everybody has seen an increase in debt. For our countries, it is close to the 1990s level,” Javorcik said. “Our countries are able to still borrow at reasonably cheap rates. Eastern EU countries are borrowing at the same rate as France, which is quite impressive, but the cost of servicing debt is becoming a non-negligible item in government budgets … Watching from afar it seems governments stopped paying attention to debt sustainability and the Greek crisis has almost been forgotten.”

Inflation is also on the rise again after the rapid disinflation following the European energy crises sparked by Russia’s invasion of Ukraine and subsequent sanctions. 

Uneven picture 

The EBRD expects Central Europe and the Baltic states to grow 2.4% in 2025, rising to 2.7% in 2026, as weak external demand and US tariffs weigh. 

In the region, private spending remains strong as governments speed up investment using EU funds before the August 2026 Recovery and Resilience Funds (RRF) deadline, boost defence budgets and benefit from cheaper borrowing. 

The Baltic countries and Poland devote about 4-5% of GDP to defence and expand military industries. EU-backed infrastructure projects are moving forward, while private investment rebounds — except in Hungary, where high rates and frozen EU funds are reining in growth. Hungary is forecast to be the slowest growing country in the broader region this year. 

The Southeastern EU economies will lag their northern counterparts with 1.7% growth next year. Western Balkans GDP is set to rise 2.7% in 2025 and 3.2% in 2026.

Central Asia remains the standout, projected to expand 6.2% next year on strong consumption, remittances and fiscal stimulus. 

The fastest growth this year is expected in Kyrgyzstan, at around 9%, supported by large-scale infrastructure developments and a strong tourism sector. However, a possible decline in remittance inflows poses a key downside risk, the EBRD warns.

The region’s largest economy, Kazakhstan, was buoyed by increased oil production at the Tengiz field. The country’s economy is expected to expand by about 5.7% in 2025 before easing to roughly 4.5% in 2026.

In the Eastern Europe and Caucasus region, growth is seen at 3.0% in 2025 and 4.4% in 2026, though Ukraine’s forecast was cut to 2.5% for 2025 based on the ongoing Russian aggression and poor harvests. 

Turkey’s growth is projected at 3.1% next year, rebounding to 3.5% in 2026. The Semed region, including Iraq, is forecast to expand by 3.7% in 2025 and 3.2% in 2026. Sub-Saharan Africa, newly included in the bank’s coverage, is expected to grow 4.7% in 2025 and 4.6% in 2026.