Translated with AI
Economic growth in Europe and Central Asia will slow significantly amid the fallout from the Middle East conflict, geopolitical tensions, and fragmented trade ties, according to a regional economic outlook published by the World Bank.
The region's economic growth rate is expected to slow to 2.1 percent in 2026.
Russia's growth is forecast to slow to 0.8 percent, while other regional economies are likely to contract to 2.9 percent. This is due to the surge in energy prices, which is holding back consumption growth, and uncertainty affecting investment.
“The region’s resilience continues to be tested as several countries rely on imported natural gas, oil and fertilizer,” said Antonella Bassani, World Bank Vice President for Europe and Central Asia.
She also noted that many countries will need to address the impact of the crisis, with particular attention to targeted measures to protect the most vulnerable segments of the population. She added that continued policy reforms aimed at ensuring sustainable growth and job creation will help mitigate the impact of the crisis and strengthen economic resilience.
Growth in Central Asia is expected to slow to an average of 4.9 percent in 2026–27 as oil production in Kazakhstan stabilizes.
In Central Europe, growth is likely to be around 2.4 percent in 2026, slowing to 2.3 percent in 2027. The decline in consumption will be partially offset by public investment financed by the European Union.
The World Bank projects economic growth in the Western Balkans to average 3.1 percent in the coming years, driven by infrastructure investment and robust services exports.
Ukraine's economic growth is expected to slow to 1.2 percent this year due to ongoing fighting, rising energy prices, and budgetary problems.
The conflict in the Middle East remains a key risk factor, potentially limiting global supplies of energy and fertilizers. This could lead to a significant increase in energy and food prices and further slow the region's development.
The slowdown in productivity growth in Europe and Central Asia over the past decade has prompted some policymakers to complement reforms with industrial policy measures aimed at supporting specific sectors, activities or firms.
Experts note that countries in the region need measures to strengthen their future competitiveness. Currently, almost two-thirds of all industrial policy measures focus on agriculture and food production, while only 10 percent are directed toward high-tech industries or capital goods.
“To achieve more dynamic growth in productivity and jobs, countries can prioritize bold policy reforms to modernize the business environment, stimulate entrepreneurship, and improve the quality of education,” said World Bank Representative Ivaylo Izvorski.
Experts believe that industrial policy should support new and dynamic private sector companies and ideas, rather than protect existing players, including state-owned enterprises, and should strengthen rather than undermine competition.
