The European Bank for Reconstruction and Development (EBRD) has revised down its economic growth outlook for 2025, citing escalating geopolitical risks, rising US tariffs, and weakened global trade as key factors weighing on the region.
In its latest Regional Economic Prospects report, published Tuesday, the EBRD now expects regional GDP to grow by 3% in 2025—a 0.2% drop from its February forecast. Growth is projected to rise modestly to 3.4% in 2026.
According to the bank, the downgrade reflects the disruptive effects of new US tariffs and persistent geopolitical tensions, which are straining global supply chains and dampening external demand. These pressures are particularly pronounced in export-oriented economies like Germany, which indirectly affects EBRD regions.
The report also notes that rising domestic demand, accommodative fiscal policy, and nominal wage growth are contributing to inflationary pressures. After falling to 5.3% in September 2024, average inflation in the EBRD region rebounded to 6.1% in February 2025. Despite this, regional debt levels are expected to remain steady at around 52% of GDP over the next four years, assuming governments implement tighter fiscal measures, including increased spending on industrial policy, defence, and interest payments.
Tariff policy remains a major concern. The EBRD estimates that “the average effective US tariff on imports from the Bank’s regions is estimated to surge from 1.8 per cent in 2024 to 10.5 per cent, assuming unchanged composition of exports.”
Beata Javorcik, the EBRD’s chief economist, warned that prolonged trade uncertainty poses serious risks:
“Although understanding the full macroeconomic effects of the newly announced tariffs will take time, it is already clear that our regions have entered a period of heightened uncertainty and slower growth… Reducing trade tensions through constructive dialogue and achieving consensus on trade policy among key stakeholders are crucial, as prolonged uncertainty carries painful economic costs.”
Among the hardest-hit areas are the Western Balkans, the Baltic states, and Central Europe. Growth in the Western Balkans is projected at 3.2% for 2025, rising slightly to 3.4% in 2026. The region’s outlook is clouded by political instability in Serbia and economic spillovers from slower Western European growth.
Central Europe and the Baltic states are expected to see growth of just 2.4% this year, with a slight improvement to 2.7% in 2026. The Slovak Republic, Estonia, and Hungary are forecast to experience the steepest downgrades from earlier projections.
In southeastern EU member states, growth is expected to reach 2% in 2025, up from 1.6% in 2024, primarily driven by resilient domestic demand in Bulgaria. However, this still falls short of previous expectations. By 2026, growth in the region is expected to reach 2.4%.
The EBRD’s updated forecast underscores the fragility of the economic recovery in its regions and highlights the urgent need for international cooperation to ease trade friction and stabilize markets.
