Economic Dynamics in the EBRD Regions: An Analytical Overview


Economic growth within the regions covered by the European Bank for Reconstruction and Development (EBRD) has experienced significant shifts in recent years, influenced by various global and regional factors. In 2022, the EBRD regions saw a growth rate of 3.3%, which decelerated to 2.5% in 2023, falling below the global average of 2.7%. This slowdown was primarily driven by the ongoing war in Ukraine, high energy prices in Europe, and a waning post-COVID recovery in the services sector. However, growth is projected to rebound to 3% in 2024, albeit slightly revised down from previous forecasts due to slower-than-expected growth in early 2024, particularly in central Europe and the Baltic states, echoing Germany’s weak economic performance.

Inflation and Disinflation Trends

Inflation in the EBRD regions peaked at 17.5% in October 2022 but moderated to an average of 6.3% by March 2024. This rapid disinflation outpaced initial expectations, although inflation remains two percentage points above pre-pandemic levels. This trend mirrors that of advanced economies where inflation has declined significantly but still exceeds central banks’ targets. Certain economies within the EBRD regions have faced cumulative price increases exceeding 30% since February 2022, with higher peaks and slower disinflation seen in countries with expansionary fiscal policies and weaker macroeconomic frameworks.

Bond Yields and Fiscal Policies

The median yield on 5-year government bonds in the EBRD regions increased by three percentage points between February 2022 and April 2024, largely due to monetary tightening in advanced economies amid persistent inflation. In the US and Germany, interest rates rose by an average of 2.6 percentage points during this period. The remaining increase reflects a reassessment of economic and geopolitical risks faced by individual borrowers. Sovereign bond yields remain elevated in countries like Lebanon, Tunisia, and Ukraine, leading to a loss of market access for these economies.

Geopolitical Impacts and Investment Shifts

Geopolitical tensions have profoundly impacted trade and investment patterns in the EBRD regions. The share of arms trade in EU economies’ imports and exports within the EBRD regions rose from a stable 0.1% to between 0.3% and 0.5% since February 2022. Furthermore, foreign direct investment (FDI) has increasingly targeted economies that bridge trade ties with other blocs. Notably, inward FDI from China to the EBRD regions surged to 39% in 2023 from less than 10% in 2022, benefiting countries like Egypt, Morocco, and Serbia.

Regional Growth Forecasts

Central Europe and the Baltic States

Growth in central Europe and the Baltic states is expected to recover from 0.1% in 2023 to 2.2% in 2024 and 3.1% in 2025. However, growth projections have been revised down for several economies in this region due to weak economic indicators in recent months.

South-Eastern EU and Western Balkans

Growth in the south-eastern EU is forecast to increase from 2% in 2023 to 2.8% in 2024 and 3.1% in 2025, supported by accommodative fiscal policies and robust real wage growth. Similarly, the Western Balkans is expected to see growth rise from 2.5% in 2023 to 3.3% in 2024 and 3.7% in 2025.

Central Asia

Central Asia’s growth is anticipated to moderate from 5.7% in 2023 to 5.4% in 2024, reflecting a plateau in intermediated trade with Russia and the impact of spring floods on Kazakhstan. Growth is expected to rebound to 5.9% in 2025.

The Caucasus and Turkey

In the Caucasus, growth is projected to increase from 3.8% in 2023 to 4.1% in 2024, before moderating to around 3.5% in 2025. Turkey’s growth is expected to slow from 4.5% in 2023 to 2.7% in 2024, with a subsequent pickup to 3% in 2025 amid more restrictive monetary and fiscal policies.

Southern and Eastern Mediterranean

The southern and eastern Mediterranean regions are expected to see growth accelerate from 2.7% in 2023 to 3.4% in 2024 and 3.9% in 2025. However, projections for 2024 have been revised downward due to slower-than-expected implementation of large public investment projects in Egypt and spillovers from the war in Gaza.

Sectoral and Policy Challenges

The EBRD regions continue to face numerous sectoral and policy challenges. Structural issues and slow reform progress in countries like Egypt hinder economic expansion. Additionally, the relocation of Russian businesses and increased oil exports are bolstering growth in Central Asia, while Mongolia benefits from expanded mining production and China’s reopening.

Geopolitical shifts and high borrowing costs pose significant hurdles for economic growth. The disappearance of the “peace dividend” has led to increased defense spending, straining budgets across the regions. Moreover, the spread of sovereign bond yields between EBRD regions and advanced economies like Germany and the US highlights ongoing economic and geopolitical uncertainties.

Comprehensive Job Report on Regional Economic Prospects in the EBRD Regions

Country2023 GDP Growth (%)2024 GDP Growth Forecast (%)2025 GDP Growth Forecast (%)Key Growth DriversKey Risks
Estonia-3,000,803,50Gradual economic recoveryPoor consumer confidence, energy production
Hungary-0,902,203,50Real wage growth, public spendingFiscal deficit, inflation resurgence
Czechia-0,300,902,50Investment growth, monetary easingStagnating foreign demand
Lithuania-0,301,502,30Public investment, consumer confidenceDeclines in consumption and net exports
Lebanon-0,200,203,00Remittances, tourismGeopolitical risks, political inaction, stalled reforms
Latvia0,001,802,60Public investment, real wage dynamicsImplementation of investment plans
Poland0,002,903,50Fiscal policy, EU-funded investmentsInflation resurgence, external financing
Tunisia0,401,902,00Reform efforts, fiscal consolidationLimited fiscal space, high external debt, external shocks
Moldova0,703,503,70Agricultural rebound, external financing, social safety netsGeopolitical instability, fiscal pressures
North Macedonia1,002,503,50Private consumption, external demand recoveryLimited fiscal space, high fiscal deficit
Azerbaijan1,103,102,70Energy exports, public investmentOil price fluctuations, geopolitical fragility
Slovak Republic1,601,802,70Consumption, wage growthFiscal consolidation, inflation risks
Slovak Republic1,601,802,70Consumption, wage growthFiscal consolidation, inflation risks
Slovenia1,602,302,60Foreign demand, post-flood reconstructionPrivate consumption growth, foreign demand
Bosnia and Herzegovina1,702,803,00Household consumption, foreign investment, servicesPolitical uncertainty, tight labor market
Bulgaria1,802,603,00Robust consumption, moderating inflation, investmentPolitical uncertainty, EU funds absorption delays
Greece2,002,302,60Economic confidence, tourism, RRF projectsDelays in RRF fund deployment, export market weaknesses
Romania2,103,203,40Domestic demand, loose fiscal policy, investmentFiscal consolidation, market pressures
Serbia2,503,504,00Industrial production, retail trade, tourismWeak eurozone economies, tight labor markets, geopolitical instability
Jordan2,602,402,60Manufacturing, agriculture, financial services, transportRegional conflict, structural reforms implementation
Croatia2,802,902,80EU-funded investments, tourism, real wage growthLabor shortages, inflationary pressures
Croatia2,802,902,80EU-funded investments, tourism, real wage growthLabor shortages, inflationary pressures
Morocco3,203,003,60Agriculture, tourism, transportation, government investmentEnergy imports dependence, climate risks
Kosovo3,304,004,00Private consumption, public infrastructure investmentsHigh inflation, geopolitical risks
Albania3,403,303,50Tourism, private consumption, stable inflationDrought affecting agriculture, electricity supply
Egypt3,803,0 (FY: 3,9)4,0 (FY: 4,4)Public spending, tourism, construction, servicesHigh interest rates, inflation, geopolitical tensions
Turkiye4,502,703,00Services, reconstruction, fiscal stimulusHigh inflation, geopolitical tensions, global financing conditions
Kazakhstan5,104,504,50Domestic demand, construction, communication, transportSevere floods, inflationary pressures
Ukraine5,303,006,00Defense spending, export recovery, domestic military productionWar-related risks, infrastructure destruction
Montenegro6,003,502,90Private consumption, investments, services, constructionDry weather affecting hydropower, inflation
Uzbekistan6,006,506,00Consumer spending, credit expansion, fixed capital investmentChronic energy and water deficits
Kyrgyz Republic6,208,507,00Intermediated trade, remittances, constructionSecondary sanctions, Russia’s import measures
Turkmenistan6,306,306,30Public and private investment, infrastructure projectsWater scarcity, outdated infrastructure
Mongolia7,005,008,00Mining, tourism, government spendingExtreme weather affecting agriculture
Georgia7,505,204,60Construction, trade, tourism, stabilized public financesGeopolitical instability, political polarization
Tajikistan8,307,507,00Mining, manufacturing, agriculture, public spendingClimate change, agricultural productivity
Armenia8,706,204,80Export demand, construction, public expendituresGeopolitical uncertainty
Sorce : European Bank

Central Asia

Central Asian economies have demonstrated robust recovery post-Covid, bolstered by an influx of money, businesses, and skilled human capital from Russia. The region has seen strong demand for key export commodities and significant investments in transport, logistics, and export-oriented manufacturing. Growth in wages and real incomes, along with a surge in tourism, has driven a consumption boom. Efforts to combat high-level corruption and improve tax and customs administration have enabled governments to finance social programs and infrastructure spending. Intra-regional trade, investment, and tourism have continued to rise, contributing to economic growth. Inflation has receded to single-digit levels, allowing central banks to soften monetary policies. Despite extreme weather events in Kazakhstan and Mongolia, the region’s outlook for 2024 and 2025 remains positive, with ongoing improvements in infrastructure, public management practices, and human capital.

Economic Recovery and Growth

Influx from Russia

The post-Covid recovery of Central Asian economies has been notably accelerated by an influx of money, businesses, and skilled human capital from Russia. This phenomenon is largely attributed to geopolitical shifts and economic policies that have made Central Asia a more attractive destination for Russian expatriates and businesses seeking stability and growth opportunities.

Export Commodities and Manufacturing

The region has witnessed a robust demand for key export commodities such as oil, natural gas, and minerals. These sectors have attracted significant investments, particularly in transport and logistics infrastructure aimed at enhancing export efficiency. Moreover, there has been a noticeable growth in export-oriented manufacturing, driven by both domestic investments and foreign direct investments (FDI). This shift towards manufacturing has diversified the economic base of many Central Asian countries, reducing their reliance on commodity exports alone.

Consumption Boom

The rise in wages and real incomes has fueled a consumption boom across Central Asia. Increased disposable income, coupled with a surge in tourism, has significantly boosted retail and service sectors. This trend is expected to continue as economic stability and growth persist, leading to a more vibrant domestic market.

Governance and Administration Reforms

Combating Corruption

Central Asian governments have made concerted efforts to combat high-level corruption, which has historically been a significant impediment to economic growth and development. These efforts include the implementation of stricter anti-corruption laws, the establishment of independent anti-corruption bodies, and greater transparency in public administration.

Tax and Customs Administration

Improvements in tax and customs administration have been pivotal in increasing government revenues, which are then funneled into social programs and infrastructure projects. Enhanced tax collection mechanisms and reduced bureaucratic red tape have encouraged greater compliance and efficiency.

Social Programs and Infrastructure

Increased government revenues have allowed for expanded social programs, addressing issues such as poverty, healthcare, and education. Additionally, significant investments in infrastructure, including roads, railways, and energy projects, have laid the groundwork for sustained economic growth and development.

Intra-Regional Trade and Investment

Intra-regional trade and investment have seen a marked increase, driven by regional cooperation initiatives and economic integration efforts. Countries in Central Asia are increasingly recognizing the benefits of collaborative economic policies, which have led to the removal of trade barriers, harmonization of standards, and joint infrastructure projects.

Tourism Growth

Tourism has emerged as a significant economic driver, with Central Asia’s rich cultural heritage, natural landscapes, and historical sites attracting visitors from around the world. Efforts to develop tourism infrastructure and promote the region as a travel destination have paid off, contributing to economic diversification and growth.

Inflation and Monetary Policies

Inflation Control

Central Asian countries have successfully managed to bring down inflation to single-digit levels, thanks to prudent monetary policies and structural reforms. This achievement has provided a stable macroeconomic environment conducive to investment and growth.

Monetary Policy Easing

With inflation under control, central banks in the region have been able to ease monetary policies, reducing interest rates to stimulate economic activity. This easing has supported credit growth, investment, and consumption, further bolstering economic recovery.

Outlook for 2024 and 2025

Positive Growth Prospects

Despite challenges such as extreme weather events in Kazakhstan and Mongolia, the outlook for Central Asian economies in 2024 and 2025 remains positive. Continued investments in infrastructure, improvements in public management practices, and the development of human capital are expected to sustain growth and development.

Infrastructure and Public Management

Ongoing infrastructure projects, including transport corridors and energy pipelines, are set to enhance connectivity and economic integration within the region. Improvements in public management practices, such as better governance and efficient public services, are also crucial for long-term economic stability and growth.

Human Capital Development

Investments in education and healthcare are vital for the development of human capital, which is essential for sustaining economic growth. Central Asian countries are increasingly focusing on enhancing the quality of education and expanding access to healthcare services, ensuring a healthier and more skilled workforce.

Central Europe and the Baltic States (CEB)

The Central Europe and Baltic states (CEB) region experienced the weakest economic performance among EBRD regions in 2023, with an average growth of just 0.1%. This sluggish growth was influenced by high inflation, tighter monetary policy, weak demand from Western Europe, and uncertainties related to the war in Ukraine. The reduction in imports due to destocking, combined with lower energy prices, helped reduce trade deficits across the region, except in the Baltic states where exports dropped sharply. However, tight labor markets, rising minimum wages, and disinflation are expected to lead to a strong rebound in real wage growth, which will support consumption in 2024. Fiscal policies are projected to align with EU fiscal rules, with the exceptions of Hungary, Poland, and the Slovak Republic, which may run significant deficits in the medium term. Economic growth is expected to accelerate in 2024 and 2025, driven by recovering consumption, EU-backed investments, and gradually improving foreign demand.

Economic Performance and Challenges

Slow Growth in 2023

The CEB region recorded the weakest economic performance among EBRD regions in 2023, with an average growth rate of merely 0.1%. This underperformance was primarily due to several factors, including persistent high inflation, tighter monetary policies, and reduced demand from Western Europe, which is a significant trading partner for many CEB countries.

Inflation and Monetary Policy

High inflation rates have been a persistent challenge for the CEB region. Central banks responded with tighter monetary policies, including raising interest rates to curb inflation. While these measures were necessary to stabilize prices, they also had the effect of dampening economic growth by increasing borrowing costs and reducing consumer spending.

Impact of the War in Ukraine

The ongoing war in Ukraine has introduced significant uncertainties and economic disruptions in the CEB region. Trade routes have been affected, investment flows have been disrupted, and there has been an overall climate of economic uncertainty that has hindered growth prospects.

Trade and Fiscal Policies

Reduction in Imports and Trade Deficits

The region saw a reduction in imports due to destocking, which, combined with lower energy prices, helped to reduce trade deficits. However, this trend was not uniform across the region. The Baltic states, in particular, experienced a sharp decline in exports, which negatively impacted their trade balance.

Fiscal Policies and EU Fiscal Rules

Fiscal policies in the CEB region are expected to gradually align with EU fiscal rules, which aim to ensure fiscal discipline and stability. However, Hungary, Poland, and the Slovak Republic are likely to run significant deficits in the medium term, reflecting domestic economic challenges and the need for fiscal stimulus to support growth.

Labor Markets and Wage Growth

Tight Labor Markets

Labor markets in the CEB region have remained tight, with low unemployment rates and high demand for skilled labor. This tightness has contributed to rising wages, particularly minimum wages, which have been increased in several countries to support low-income workers and stimulate consumption.

Real Wage Growth and Consumption

Disinflation trends are expected to lead to a strong rebound in real wage growth, which will support consumption in 2024. Higher real incomes will boost consumer spending, providing a significant impetus for economic recovery and growth.

Outlook for 2024 and 2025

Economic Growth Acceleration

Economic growth in the CEB region is projected to accelerate in 2024 and 2025, driven by recovering consumption, EU-backed investments, and gradually improving foreign demand. The anticipated rebound in economic activity will be supported by favorable fiscal policies, increased public and private investments, and a more stable macroeconomic environment.

EU-Backed Investments

EU-backed investments, particularly those aimed at infrastructure development and digital transformation, will play a crucial role in driving economic growth. These investments are expected to enhance productivity, improve connectivity, and create new economic opportunities across the region.

Foreign Demand and Trade

Gradually improving foreign demand, particularly from Western Europe, will provide a boost to the CEB region’s exports. Enhanced trade relations and the resolution of supply chain disruptions will further support economic recovery and growth.

– South-eastern EU

Economies in the south-eastern EU experienced significant deceleration in growth in 2023 but still outperformed many EU peers, primarily driven by robust consumption. Positive investment trends and the availability of substantial EU funds are expected to drive short- and medium-term growth alongside strong wage growth.

Economic Performance and Trends

Growth Deceleration in 2023

The south-eastern EU economies witnessed a significant deceleration in growth in 2023, reflecting broader regional and global economic challenges. Despite this slowdown, the region managed to outperform many of its EU peers, underscoring the resilience of its economies.

Robust Consumption

Robust consumption has been a key driver of economic performance in the south-eastern EU. Increased consumer spending, supported by rising wages and employment, has bolstered retail and service sectors, contributing to overall economic stability.

Investment and EU Funds

Positive Investment Trends

Positive investment trends have been observed across the south-eastern EU, driven by both domestic and foreign investors. These investments are focused on key sectors such as infrastructure, energy, and technology, which are critical for long-term economic growth and competitiveness.

Availability of EU Funds

The availability of substantial EU funds has been a significant boon for the region. These funds are directed towards various development projects, including infrastructure, education, healthcare, and green energy initiatives. The effective utilization of these funds is expected to drive short- and medium-term growth.

Wage Growth and Fiscal Policies

Strong Wage Growth

Strong wage growth has been a notable trend in the south-eastern EU. Rising wages, particularly in the public sector and high-demand industries, have supported household incomes and consumption, contributing to economic stability and growth.

Fiscal Policies

Fiscal policies in the region have been generally supportive of economic growth. Governments have implemented measures to stimulate the economy, including tax incentives, increased public spending, and targeted social programs. These policies are expected to continue supporting economic recovery and development.

Outlook for 2024 and Beyond

Economic Growth Prospects

The outlook for the south-eastern EU economies remains positive, with expectations of continued economic growth in 2024 and beyond. Key drivers of this growth include robust consumption, positive investment trends, and the effective utilization of EU funds.

Structural Reforms

Ongoing structural reforms aimed at improving the business environment, enhancing public administration, and fostering innovation will be critical for sustaining long-term growth. These reforms are expected to enhance the region’s competitiveness and attract further investments.

Challenges and Risks

Despite the positive outlook, the region faces several challenges and risks, including geopolitical uncertainties, potential financial market volatility, and structural economic weaknesses. Addressing these challenges will be crucial for maintaining economic stability and achieving sustainable growth.

– Southern and Eastern Mediterranean

The southern and eastern Mediterranean region has shown resilience in the face of rising political and security tensions, particularly due to the war in Gaza. Jordan experienced a drop in tourism and investment, while Tunisia continued to struggle with financing constraints. Egypt saw a reduction in Suez Canal traffic revenues, but this was offset by commitments from international partners, including an expanded IMF program. Morocco, Jordan, and Egypt benefitted from support from the IMF and international donors, contributing to macroeconomic stabilization. Inflation has moderated across the region, although it remains above 30% in Egypt. The region is broadly on track for fiscal consolidation in 2024 while maintaining growth-enhancing investments and targeted social protection. The average growth rate is expected to pick up to 3.4% in 2024 as economic stabilization programs and reforms start to pay off, despite major downside risks related to potential escalation of tensions in the Middle East.

Economic Resilience and Challenges

Political and Security Tensions

The southern and eastern Mediterranean region has shown remarkable resilience despite rising political and security tensions, particularly the ongoing war in Gaza. These tensions have had varying impacts on different countries within the region, affecting economic stability and growth prospects.

Impact on Jordan and Tunisia

Jordan experienced a notable drop in tourism and investment due to the heightened political and security risks. This decline has affected its economic performance, which heavily relies on tourism revenues and foreign investments. Similarly, Tunisia has continued to struggle with financing constraints, limiting its ability to stimulate economic growth and development.

Egypt’s Economic Challenges and Support

Egypt faced a reduction in Suez Canal traffic revenues, a critical source of foreign exchange. However, this impact was mitigated by commitments from international partners, including an expanded IMF program. This support has been essential in stabilizing Egypt’s macroeconomic environment and addressing its balance of payments challenges.

IMF and International Donor Support

Macroeconomic Stabilization

Morocco, Jordan, and Egypt have benefited from support from the IMF and international donors, which has been crucial for macroeconomic stabilization. This support has helped these countries implement necessary economic reforms, stabilize their currencies, and address fiscal deficits.

Inflation Trends

Inflation has moderated across the region, providing some relief to consumers and businesses. However, inflation remains above 30% in Egypt, posing significant challenges to economic stability and growth. Central banks in the region continue to implement policies aimed at controlling inflation and ensuring price stability.

Fiscal Policies and Economic Reforms

Fiscal Consolidation

The region is broadly on track for fiscal consolidation in 2024, with countries implementing measures to reduce fiscal deficits and stabilize public finances. This process involves enhancing revenue collection, reducing unnecessary expenditures, and improving fiscal management practices.

Growth-Enhancing Investments

Despite the focus on fiscal consolidation, governments in the southern and eastern Mediterranean region are maintaining growth-enhancing investments. These investments are aimed at infrastructure development, energy projects, and social programs, which are critical for long-term economic growth and stability.

Targeted Social Protection

Targeted social protection programs are being implemented to support vulnerable populations and mitigate the social impact of economic reforms. These programs are designed to provide financial assistance, improve access to essential services, and enhance social inclusion.

Outlook for 2024 and Beyond

Economic Growth Prospects

The average growth rate in the southern and eastern Mediterranean region is expected to pick up to 3.4% in 2024, as economic stabilization programs and reforms start to yield positive results. This growth will be driven by increased investments, improved macroeconomic stability, and enhanced economic resilience.

Potential Risks

Despite the positive growth outlook, there are significant downside risks related to potential escalation of tensions in the Middle East. These risks could impact investment flows, trade, and overall economic stability in the region. It is crucial for countries to remain vigilant and proactive in managing these risks.

Continued Reforms

Continued economic reforms will be essential for sustaining growth and stability in the southern and eastern Mediterranean region. These reforms should focus on improving the business environment, enhancing public sector efficiency, and fostering private sector development.

– Western Balkans

The Western Balkans, a region comprising Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia, has seen a deceleration in economic growth in 2023. This slowdown, from 3.4% in 2022 to 2.5% in 2023, was primarily driven by persistently high inflation, which dampened domestic demand, and weak external demand from the European Union (EU), the region’s main trade partner. However, the outlook for 2024 and beyond appears more optimistic, with growth projected to recover to 3.3% in 2024 and 3.7% in 2025 as inflation pressures ease and construction activities pick up across the region​.

Economic Performance in 2023

Growth and Inflation

The economic slowdown in the Western Balkans during 2023 was influenced by several factors. High inflation rates, driven by global commodity price shocks and lingering supply chain issues, remained a significant challenge. Despite a general global trend of decelerating inflation towards the end of the year, the impact of high prices continued to suppress consumer spending and investment in the region​​.

Domestic and External Demand

Domestic demand was particularly weak due to the reduced purchasing power of households affected by high inflation. However, some economies in the region managed to support household consumption through fiscal stimulus measures and increases in minimum wages. External demand was subdued due to the economic slowdown in the EU, which affected export-oriented economies like Serbia, Bosnia and Herzegovina, and North Macedonia. On the other hand, tourism-oriented economies such as Albania, Montenegro, and Kosovo fared slightly better due to a recovery in international travel.

Labor Market and Wages

Despite the economic challenges, the labor market in the Western Balkans showed resilience in 2023. Unemployment rates declined across all countries, reaching an average of 10.9%. Real wages increased, reversing the trend seen in 2022 when inflation outpaced wage growth. This improvement in the labor market helped mitigate some of the adverse effects of high inflation on household incomes.

Prospects for 2024 and 2025

Expected Economic Growth

Economic growth in the Western Balkans is expected to rebound in 2024 and 2025. The region is projected to grow by 3.3% in 2024 and 3.7% in 2025, driven by a moderation in inflation and an increase in construction activities. The implementation of capital expenditure projects supported by International Monetary Fund (IMF) programs in countries like Kosovo, North Macedonia, and Serbia will play a crucial role in this recovery​​.

Structural Reforms and Investments

The EU’s new Growth Plan for the Western Balkans, approved in late 2023, aims to catalyze growth-enhancing reforms and investments. This plan focuses on improving infrastructure, enhancing the business environment, and fostering innovation and digital transformation. These structural reforms are essential for achieving faster and more sustainable economic growth in the region, enabling it to converge more rapidly with EU income levels over the medium term​.

Sectoral Developments

The construction sector is expected to be a significant driver of growth in the coming years, supported by increased public and private investments in infrastructure projects. Additionally, efforts to improve energy efficiency, expand public transport, and enhance waste management in urban areas will contribute to economic growth and environmental sustainability. The tourism sector, which showed signs of recovery in 2023, is also expected to continue its positive trajectory as global travel normalizes​.

Challenges and Risks

Geopolitical Risks

The ongoing war in Ukraine remains a significant risk to the economic outlook of the Western Balkans. The region’s close economic ties with the EU mean that any further escalation of the conflict could disrupt trade and investment flows, leading to economic instability. Additionally, the potential for new geopolitical tensions in the Balkans could pose risks to the region’s economic stability and growth prospects​ .

Inflation and Financial Conditions

Although inflation is expected to moderate in 2024, the risk of persistently high inflation remains. Central banks in the region will need to carefully balance monetary policy to control inflation while supporting economic growth. Tighter global financial conditions could also pose challenges for financing public and private investments, which are crucial for the region’s growth​.

Structural Reforms and Governance

Implementing structural reforms and improving governance will be critical for the Western Balkans to achieve sustained economic growth. Enhancing the business environment, tackling corruption, and improving public administration are essential steps towards attracting foreign investment and fostering a more dynamic private sector. The success of these reforms will depend on the political will and capacity of governments in the region to implement them effectively.

The Western Balkans faces a mixed economic outlook, with a notable slowdown in growth in 2023 but promising prospects for recovery in 2024 and 2025. While high inflation and weak external demand have posed significant challenges, the region’s resilience in the labor market and the implementation of fiscal stimulus measures have provided some support. Looking ahead, the successful implementation of structural reforms, supported by the EU’s Growth Plan and IMF programs, will be crucial for achieving sustainable and inclusive economic growth. However, geopolitical risks and the potential for persistent inflation remain key challenges that need to be addressed to ensure a stable and prosperous future for the Western Balkans.

In summary, while the EBRD regions are projected to experience modest growth improvements in the coming years, numerous factors such as geopolitical tensions, inflationary pressures, and structural challenges continue to shape their economic trajectories. The interplay of these dynamics necessitates adaptive policy measures to foster sustainable growth and stability across these diverse economies.

APPENDIX 1 – Table 1. GDP growth in real terms

ActualForecast   2024(May’24)   2025Rev. since Sep’23
EBRD regions7.33.32.5 3.03.6 0.2
Central Asia5.24.65.7 5.45.9 0.5
Kazakhstan4.13.25.1 4.55.5 -0.5
Kyrgyz Republic5.59.06.2 8.57.0 1.5
Mongolia1.65.07.0 5.08.0 -2.5
Tajikistan9.48.08.3 7.57.0 0.0
Turkmenistan6.26.26.3 6.36.3 -0.7
Uzbekistan7.45.76.0 6.56.0 0.0
Central Europe and the Baltic states6.54.00.1 2.23.1 0.3
Croatia13.86.32.8 2.92.8 0.6
Czechia3.62.4-0.3 0.92.5 -1.6
Estonia7.2-0.5-3.0 0.83.5 -1.2
Hungary7.14.6-0.9 2.23.5 -0.6
Latvia6.73.0-0.3 1.82.6 -0.2
Lithuania6.32.4-0.3 1.52.3 0.0
Poland6.95.30.2 2.93.5 0.2
Slovak Republic4.81.91.6 1.82.7 -0.4
Slovenia8.22.51.6 2.32.6 0.0
Eastern Europe and the Caucasus5.3-13.04.4 3.54.9 0.4
Armenia5.812.68.7 6.24.8 1.7
Azerbaijan5.64.61.1 3.12.7 0.6
Georgia10.611.07.5 5.24.6 0.7
Moldova13.9-4.60.7 3.53.7 0.0
Ukraine3.4-29.15.3 3.06.0 0.0
South-eastern EU7.04.62.0 2.83.1 0.0
Bulgaria7.73.91.8 2.63.0 0.0
Greece8.45.62.0 2.32.6 0.0
Romania5.74.12.1 3.23.4 0.0
Southern and eastern Mediterranean6.43.32.7 3.43.9 0.5
Egypt7.24.22.9 3.94.4 -0.6
Jordan3.72.42.6 2.42.6 -0.1
Lebanon-10.00.0-0.2 0.23.0 -2.8
Morocco8.01.33.2 3.03.6 0.0
Tunisia4.62.60.4 1.92.0 -0.6
Turkiye11.45.54.5 2.73.0 0.3
Western Balkans7.93.42.5 3.33.7 0.1
Albania9.05.03.4 3.33.5 0.0
Bosnia and Herzegovina7.44.11.7 2.83.0 -0.2
Kosovo10.74.33.3 4.04.0 0.0
Montenegro13.06.46.0 3.52.9 -0.2
North Macedonia4.52.21.0 2.53.5 -0.5
Serbia7.72.52.5 3.54.0 0.0
Memo: Egypt (fiscal year to June) 3.04.0 -1.8
Caucasus6.77.33.8 4.13.5 0.8
Belarus2.4-4.73.9 2.82.2 1.5
Russia4.7-1.23.6 2.51.5 1.5
Source: National authorities and EBRD. Notes: Weights are based on the values of gross domestic product in 2022 at market exchange rates.

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