EBRD Updates Growth Forecast: 3.1% in 2025, 3.3% in 2026

Post by : Monika

On September 25, 2025, the European Bank for Reconstruction and Development (EBRD) updated its economic growth forecast for the countries it supports. The bank now expects these economies to grow by 3.1% in 2025, a slight increase from previous predictions. This marks the first upward revision in over a year.

Regions Covered by EBRD

• The EBRD focuses on emerging economies across several regions:
• Emerging Europe: Countries like Poland, Hungary, and Romania.
• Central Asia: Nations such as Kazakhstan and Uzbekistan.
• Middle East: Including countries like Egypt and Jordan.
• Africa: Specifically, Sub-Saharan African countries like Kenya and Ghana.

The bank's updated forecast does not include its newest members—Iraq and six Sub-Saharan African countries. However, these countries are mentioned elsewhere in the report.

Divergence in Growth Rates

While the overall growth forecast has been raised, the EBRD notes a growing difference in economic performance among these regions. Emerging European countries are expected to experience slower growth compared to other areas like Central Asia, Sub-Saharan Africa, and Turkey.

Challenges Facing EBRD Countries

• Despite the positive outlook for 2025, several challenges could impact economic growth:
• High Debt Levels: Many countries are struggling with increasing debt and the need to reduce spending.
• Inflation: Prices are rising faster than expected, affecting people's purchasing power.
• Prolonged Conflicts: Ongoing wars and instability in certain regions are hindering development.
• Trade Barriers: Rising tariffs and trade tensions are affecting exports and economic relations.

Impact of U.S. Tariffs

The EBRD highlights the potential impact of U.S. tariffs on trade. While exports from EBRD countries to the U.S. increased in the first half of the year, this was mainly due to shipments before new tariffs were imposed. Going forward, the bank anticipates that these tariffs will negatively affect trade and economic growth.

Ukraine's Economic Outlook

Ukraine's economic situation remains challenging. The ongoing war with Russia, poor harvests, and labor shortages have led to a downgrade in its growth forecast. The country is facing significant obstacles in rebuilding and stabilizing its economy.

Russia's Economic Challenges

Russia is also experiencing economic difficulties. The country is dealing with strained public finances and declining energy exports. These issues could lead to stagflation—a situation where the economy is stagnant, and inflation is high.

Inflation Concerns

Inflation has surged in many EBRD countries, averaging 6.4% as of July 2025. This increase is partly due to government spending and expansionary fiscal policies. High inflation can erode savings and reduce consumer spending, posing risks to economic stability.

Debt Servicing Burdens

The cost of servicing debt is becoming a significant burden for many countries. For example, Egypt is spending 14% of its GDP on debt payments, while countries like Hungary and Poland are spending much less. High debt servicing costs can limit the ability of governments to invest in infrastructure and social programs.

Turkey's Economic Outlook

Turkey's economic growth forecast for 2025 has been raised from 2.8% to 3.1%. This improvement is attributed to easing domestic financial conditions. However, the EBRD warns that political instability, fluctuating investor sentiment, and tighter global financing conditions pose risks to Turkey's economic stability.

Political Instability in Turkey

The detention of Istanbul Mayor Ekrem Imamoglu in March 2025 led to a depreciation of the Turkish lira and market volatility. In response, Turkey's central bank reversed its policy and raised interest rates in April. The EBRD notes that while these measures aim to control inflation, they may have adverse effects on exports.

Geopolitical Tensions

The EBRD also points out that easing geopolitical tensions and enhanced cooperation with the European Union could bolster Turkey's strategic sectors, such as construction, logistics, and defense. Turkey remains the EBRD's largest investment recipient in 2024.

Looking Ahead to 2026

The EBRD has lowered its 2026 growth forecast to 3.3%, citing concerns about rising tariffs, ongoing wars, inflation, and high debt levels. The bank emphasizes the need for countries to implement reforms and address these challenges to sustain long-term economic growth.

The EBRD's updated growth forecast for 2025 reflects a cautious optimism for the economies in its regions. While there are signs of recovery, significant challenges remain. High debt, inflation, and geopolitical tensions could impede progress. The bank stresses the importance of addressing these issues to ensure sustainable economic development in the coming years.