EBRD Upgrades Growth Outlook, but Tariff Risks Loom

The European Bank for Reconstruction and Development (EBRD) has raised its growth forecast for 2025 for the first time in more than a year, while cautioning that tariffs and ongoing conflicts could weigh heavily on growth in 2026.

Covering economies across emerging Europe, Central Asia, the Middle East, and Africa, the report nudged the 2025 growth projection slightly higher to 3.1%. However, it also highlighted a widening gap, as emerging European economies continue to lag behind peers in other regions.

The 2025 forecast does not yet include the EBRD’s newest members—Iraq, along with six sub-Saharan African countries including Nigeria, Kenya, and Ghana—though they are featured elsewhere in the report for the first time.

EBRD Chief Economist Beata Javorcik told Reuters the latest findings illustrate “a story of multiple pressure points and a growing divergence between emerging Europe and the bank’s other regions of operation.”

She warned that rising debt, resurging inflation, prolonged war, and new tariffs all pose significant threats to EBRD economies. While U.S. imports from these countries rose in the first half of the year, that growth was concentrated in the first quarter—before tariffs took effect.

“Going forward, we will see the impact of tariffs more strongly,” Javorcik said.

Mounting Debt Burden

Debt and the need for fiscal restraint are weighing heavily on growth in EBRD’s European members, including Poland, Hungary, and Romania, even as Central Asia, sub-Saharan Africa, and Turkey are expected to see faster expansion.

But Javorcik noted that debt service costs are rising as a share of GDP in most countries, raising concerns about the long-term sustainability of public finances.

“There has been a shift in global policymaker mindset,” she said. “It’s as if debt sustainability is no longer a concern—as though everyone has forgotten Greece’s recent experience.”

She described public debt levels in EBRD countries as “very high”—roughly back to the levels of the early 1990s—while debt servicing has become a major budgetary burden.

In extreme cases such as Egypt, debt service costs account for around 14% of GDP. By comparison, the figure is about 4% in Hungary and 2% in Poland.

Inflation, meanwhile, is once again accelerating. It is projected to average 6.4% across EBRD regions by July 2025—well below the 17.5% peak in 2022 but still higher than expected, and increasingly demand-driven, reflecting expansionary fiscal policies.

Ukraine and Russia Outlook

The EBRD further downgraded its 2025 growth outlook for Ukraine, citing the protracted war with Russia now entering its fourth year, along with weak harvests and worsening labor shortages.

Russia’s economy, Javorcik added, is also entering a difficult phase, strained by public finance pressures and tighter restrictions on oil and gas exports.

“There is still the uncomfortable combination of high inflation and slowing growth,” she said. “Russia is heading toward stagflation.”