The European Bank for Reconstruction and Development (EBRD) has revised down its 2025 growth forecast for the regions in which it operates, citing heightened global trade tensions, tariff hikes and persistent geopolitical uncertainty.

In its latest Regional Economic Prospects report released on May 12, titled “Uncertain Times”, the EBRD forecasts an average growth rate of 3.0% for 2025, down from the 3.2% predicted in February. The revision follows an earlier 0.3 percentage point (pp) downgrade made three months ago. 

The deepest downgrades are for Western Balkans, Central Europe and the Baltic states.

The bank expects a modest recovery in 2026, with regional growth projected at 3.4%.

The downward shift in outlook comes as new US tariff measures – including 25% levies on steel, aluminium and cars, and a 10% increase across broader categories – ripple through global trade networks. The EBRD estimates that the average effective US tariff on imports from its regions will jump from 1.8% in 2024 to 10.5%, assuming export compositions remain unchanged.

Slovakia, Jordan and Hungary are forecast to face the steepest GDP hits from the tariffs, with direct losses of up to 0.8%, 0.6% and 0.4% respectively. In Slovakia and Hungary, vehicle exports account for the bulk of these declines.

This latest Regional Economic Prospects is a story of the external environment affecting our countries of operations, in particular developments on the trade front,” said EBRD chief economist Beata Javorcik in an interview with bne IntelliNews ahead of the report’s release. 

“For our countries of operations the biggest effect would materialise indirectly via developments in advanced economies, particularly Germany, as well as via developments in China.”

Beyond the immediate impact, the report warns of knock-on effects for global supply chains and investor sentiment. Even countries with limited direct trade links to the US are likely to suffer as uncertainty disrupts cross-border production networks.

The new EU member states as well as the Western Balkans and parts of North Africa are affected by Germany’s poor economic performance; the International Monetary Fund (IMF) recently lowered its 2025 GDP growth projection for Europe’s largest economy to 0%. 

“Germany is an important market for many of our countries of operations, with a significant share of exports going there from the new EU member states, as well as smaller countries like North Macedonia and Bosnia. Germany is also an important market for North African countries, in particular Tunisia,” said Javorcik. 

“As Germany continues to register a weak performance, that will continue to exert a negative effect on exports from our region of operations.” 

Meanwhile, the Central Asian countries, in particular Mongolia, are set to feel the impact from the slowdown in China. 

“The second market that matters very much for Central Asian countries is China. The slowdown in the Chinese economy means lower demand for commodities. This will particularly hit Mongolia. Exports of commodities from Mongolia to China are equivalent to 62% of Mongolia’s GDP, so the effect is huge,” Javorcik told bne IntelliNews. 

“There is another indirect effect working through commodities prices. We have seen a weakening of prices of oil and other commodities in expectation of a slowdown of the global economy.” 

On the other hand, increased demand for defence has benefitted some countries in the region. Between 2014 and 2023, defence spending in the EBRD regions nearly doubled, from 1.8% to 3.5% of GDP. Arms exports have also ticked up, with Bosnia & Herzegovina, the Slovak Republic, Czechia and Poland among the largest exporters.

The bank estimates that increased domestic defence demand could lift GDP by as much as 1.0 to 1.5 percentage points in countries such as Slovakia, Greece, Croatia and Hungary.

Aside from defence, Javorcik pointed to public investment driving growth. “In our EU member countries this has been the contribution from the RRF and here countries such as Romania and Bulgaria can do more, as utilisation of the RRF has not been very high,” she said. 

“Private consumption has also been a driver. Some of our countries have a lot of space to undertake structural reforms, which can stimulate growth. So external demand is not the only factor.” 

Inflationary pressures are once again on the rise across EBRD regions, reversing a downward trend that had seen average inflation fall to 5.3% in late 2024. As of February 2025, inflation had climbed to 6.1%, driven by robust domestic demand and expansive fiscal policies.

“Inflationary pressures are now predominantly demand-driven, reflecting loose fiscal policies and strong nominal wage growth,” the bank said in a press release.

Despite increased fiscal burdens – including rising defence, industrial and debt servicing costs – average public debt is expected to remain stable at around 52% of GDP. However, this forecast assumes governments pursue “stringent fiscal measures”, including spending cuts in non-priority areas.

The EBRD also expressed concern over the growing reliance on bond markets for funding, particularly among lower-income economies. The shift away from concessional finance leaves many of these countries more exposed to global financial volatility.

Growth prospects vary widely across EBRD regions. Central Europe and the Baltic states are forecast to expand by 2.4% in 2025, down from previous estimates, with sluggish demand from Germany weighing on performance.

The Western Balkans are expected to slow to 3.2%, while Southeast EU economies – Romania, Bulgaria and Greece – will see growth of around 2.0%. Political instability and external headwinds are dampening momentum in both areas.

In Ukraine, the growth forecast has been trimmed to 3.3%, as continued attacks on energy infrastructure and weak EU demand hamper recovery.

Central Asia is projected to remain one of the fastest-growing regions, expanding by 5.5% in 2025, though slightly slower than 2024’s 5.6%. Declines in commodity prices prompted downgrades for Kazakhstan and Mongolia.

Turkey’s growth is forecast to ease to 2.8% in 2025 from 3.2% in 2024, amid tighter monetary policy and softening demand.

Meanwhile, the Southern and Eastern Mediterranean region (Semed) is expected to grow by 3.6% in 2025, with improvements in domestic activity offset by continued geopolitical volatility and global policy uncertainty.