EBRD Raises Growth Forecasts for Operating Regions

The London-based lender now sees combined growth in its regions at 3.4% in 2025, rising to 3.6% in 2026 and 3.7% in 2027, with this year’s estimate revised up by 0.2 percentage point from its September outlook. EBRD chief economist Beata Javorcik said the bloc’s economies are adapting better to prolonged trade stress, in part because the US is not a key destination for most of them and the impact of Washington’s tariff policy often arrives indirectly through Germany and other European manufacturing hubs.

That dynamic helps explain why the EBRD’s outlook is uneven rather than uniformly strong. Central Asia remains the standout, with growth expected at 5.6% in 2026 after 6.9% last year, supported by resilient consumption, credit expansion and steady remittance inflows. By contrast, Eastern Europe and the Caucasus are forecast to expand 2.9%, while Ukraine’s growth estimate was cut to 2.5% this year as the bank said any economic benefit from a peace deal would take time to reach the real economy.

Turkey is projected to grow 4.0% in 2026 despite tight monetary policy and volatile markets, while the Southern and Eastern Mediterranean region was upgraded to 4.2%. In Central Europe and the Baltic states, growth of 2.9% next year is being driven more by investment than by household demand, as governments accelerate spending tied to the European Union’s Recovery and Resilience Facility. In the Western Balkans, large public infrastructure projects are expected to lift growth to 3.1% this year.

The bank’s more constructive view rests partly on inflation relief. Average inflation across its operating regions fell to 5.5% in December 2025, easing pressure on real incomes. Slower wage growth and positive real interest rates are helping rebuild consumer purchasing power, which matters for domestic demand at a time when external trade remains vulnerable to policy shocks.

Trade patterns are also working in the region’s favor, at least for now. As US-China commerce weakened in 2025, American buyers searched for alternative suppliers, boosting exports from some EBRD economies of computers, mobile phones, precious metals and other goods. At the same time, Chinese manufacturers increased shipments into the EBRD region, taking advantage of excess capacity and competitive pricing. Javorcik said fears of broad Chinese trade diversion into developing Europe have not yet materialized sharply, but she warned Chinese competition remains intense at home and abroad.

For investors, that creates a mixed backdrop. Exporters linked to western supply chains and to US import substitution may keep gaining market share, but domestic manufacturers face margin pressure from low-cost Chinese goods. The EBRD’s caution that macroeconomic effects from fresh US tariffs could still emerge also suggests that the current resilience may not fully reflect the eventual drag on global demand, especially since early-year front-loading by US firms may have masked the underlying hit.

The broader message is that geopolitics is reshaping trade flows more than it is crushing growth. That supports parts of emerging Europe and Central Asia, but it also makes the winners more specific: countries with flexible supply chains, stronger domestic demand and investment-led growth. Those with weaker external buffers, higher exposure to Ukraine-related uncertainty or heavier dependence on imported industrial inputs remain more vulnerable if tariffs, sanctions or a slowdown in Germany intensify.