Europe and Central Asia (ECA) continue to face a period of low economic growth. According to the latest projections, the growth rate is expected to be 3.6% for 2024. This comes on the heels of a decade of relative stability, with the region’s growth averaging 4% per year from 2010 to 2019. The picture in 2025 and 2026 is not so rosy, with growth expected to slow to 4.7%. Countries in the Western Balkans and South Caucasus will experience spurred growth rates. This trend inarguably worries both elected leaders and economists.
What is more, the World Bank’s recently published analysis foreshadows a storm of further challenges for individual economies comprising the ECA region. Ukraine’s post-war economy is expected to see only 2% growth, deeply affected by challenges that still come with active war. At the same time, Russia’s economic growth is expected to be only 1.3%, affected by hard-hitting sanctions, increased borrowing costs, and falling energy prices. Just as these economies brace under the weight of these twin pressures, the need for urgent structural reforms becomes paramount.
Regional Growth Trends
These growth forecasts for the larger countries show how different economic fortunes are within Europe and Central Asia. Growth in the Western Balkans is forecast to slow to 3.4%. At the same time, the South Caucasus is projected to have a growth rate of 3.5%. Poland’s economy is expected to increase by 3.1%, backed up by capital investments facilitated through European Union funds. Lastly, Türkiye is due for a positive growth surprise (3.3%) as it works through a complex economic rebalancing of its own.
Kazakhstan’s stellar economic performance seems increasingly like an outlier, with slower oil sector growth weighing heavily on national growth. Analysts warn that the heavy dependence on oil revenue strips the nation of its safety net in a boom and bust global market.
“Global uncertainty, geoeconomic fragmentation and weak expansion among key trading partners are making it more challenging to sustain this growth,” – Antonella Bassani, World Bank Vice President for ECA
These projections indicate a need for the region’s countries to reassess their economic strategies in light of external pressures and domestic challenges.
Factors Influencing Growth
Even though a significant deceleration is in the cards, other elements have supported growth in ECA. The dynamics of consumer spending remaining robust, remittances have been rising, and real wage growth have been supportive of economic activity. Once these externalities start to subside, which eventually they will, the emphasis must turn to long-term viability.
The road ahead will be steep for Ukraine’s recovery, as fighting escalates. At the same time, Russia gets consumed by the effects of international sanctions that poison its economic life.
“To achieve stronger economic expansion over the long term, it is crucial for the countries in the region to accelerate domestic structural reforms that foster a dynamic and innovative private sector, entrepreneurship and technology adoption,” – Antonella Bassani, World Bank Vice President for ECA
Their structural reform focus almost guarantees full transformation in thinking and doing business on the ground. This kind of innovation increases productivity and therefore helps overall economic growth.
Future Outlook
As the World Bank points out, creating an environment where innovation and experimentation is encouraged, including in business, is key. Realizing high-income status across the region depends on these, their relevance and reach.
Ivailo Izvorski, World Bank Chief Economist for Europe and Central Asia, underscores this point:
“Innovation and experimentation in business are essential for boosting productivity and a prerequisite for achieving and sustaining high-income status.”
Now, countries in Europe and Central Asia are sailing in similarly choppy economic waters. They need to pass legislation that not only deals with the crisis in front of them, but lays the groundwork to be more resilient tomorrow.
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