The World Bank has sounded the alarm over a looming slowdown in economic growth across Eastern Europe and Central Asia, citing inflationary pressures, weakening global demand, and persistent structural inefficiencies as key obstacles. In its Spring 2025 Economic Update released Wednesday, the Bank forecasts average regional growth to fall to just 2.5% in both 2025 and 2026.
Excluding Russia, the regional forecast slightly improves to 3.3%—still significantly below the 4% average recorded in the decade prior to the COVID-19 pandemic.
After a post-pandemic rebound that saw growth hit 3.6% in 2024, driven largely by consumer spending, wage growth, and remittance inflows, the region now faces mounting headwinds. “Global uncertainty, geoeconomic fragmentation, and weak expansion among key trading partners are making it more challenging to sustain this growth,” said Antonella Bassani, the World Bank’s Vice President for Europe and Central Asia.
Diverging Country Outlooks
Even Central Asia—the fastest-growing subregion—is showing signs of fatigue, with projected growth of 4.7% in 2025 and 2026 due to declining oil exports and slowing remittances. Russia’s economy is expected to slow to just 1.3%, weighed down by sanctions, high borrowing costs, and softer energy prices.
Türkiye is forecast to grow at 3.3% as it navigates economic rebalancing, while Poland, backed by EU investment, is expected to expand by 3.1%. Growth in the Western Balkans and South Caucasus is projected at 3.4% and 3.5% respectively. War-torn Ukraine is likely to see growth slow to just 2%.
Inflation and Policy Shifts
Inflation has re-emerged as a key concern. By February 2025, average inflation in the region climbed to 5% year-on-year, up from 3.6% in mid-2024. Rising food and service prices, along with tight labour markets, have led central banks to pause interest rate cuts or, in some cases, raise rates again—complicating efforts to stimulate growth.
Call for Structural Reforms
The World Bank emphasized that structural reforms are essential to escape the region’s current trajectory. Ivailo Izvorski, the Bank’s Chief Economist for the region, stressed the need to foster innovation, support high-growth start-ups, and reduce the dominance of state-owned enterprises.
“To avoid the middle-income trap, countries must focus on productivity, open markets, and economic modernization,” the report concluded. Without decisive action, the region risks being left behind in an increasingly competitive global economy.
