The bank has slightly lowered its GDP growth forecast to 2.8% for this year and 3.5% for 2025, marking a reduction of 0.2 and 0.1 percentage points respectively. This is the second downward revision for the lender’s area, which includes emerging Europe, Central Asia, the Middle East, and Africa.
“As I travel through European cities, I notice that the mood is quite low,” Beata Javorcik, the EBRD’s chief economist, told Reuters, noting that Europe is grappling with increasing conflict and elevated energy costs.
“It feels like Europe is facing a crisis.”
Although energy prices have cooled since their peak following Russia’s invasion of Ukraine in 2022, the report indicates that gas prices in Europe remain five times higher than those in the United States.
In addition, stagnant mining output in Kazakhstan and Uzbekistan, conflicts in Gaza and Lebanon, and severe droughts in Morocco and Tunisia are also hindering growth.
Mr. Javorcik mentioned that stimulus measures from China could enhance prospects for EBRD countries that export raw materials, noting that trade barriers have prompted Beijing to invest billions in Hungary, Serbia, and Morocco—foreign direct investment that might increase further if global trade policies restrict imports from China.
CONFLICTS
However, Mr. Javorcik warned that the deepening crisis in the Middle East—highlighted by Israel’s attacks on Hezbollah positions in Lebanon—could exacerbate Lebanon’s political and economic turmoil and negatively impact neighboring countries like Jordan and Egypt.
“There is a strong likelihood that nations close to the Middle Eastern conflict will experience an increase in risk premiums, which will elevate their borrowing costs,” she stated.
The EBRD also reduced its growth forecast for Ukraine in 2025 by 1.3 percentage points to 4.7%, citing attacks on energy infrastructure that could also lead to rising inflation.
“Imported electricity is becoming more expensive, which drives up costs. Additionally, power outages and rolling blackouts are detrimental to energy-intensive sectors.”
In contrast, the EBRD reported that growth in Russia reached 4.7% in the first half of 2024, exceeding expectations, partially due to a more than 10% year-on-year rise in oil export prices.
EBRD analysis revealed that the discount importers once paid for Russian oil, which was previously $20 a barrel, has vanished, raising questions about the effectiveness of Western price controls.
“Sanctions are having an impact, but it’s gradual,” Javorcik remarked. “This is a cumulative effect that will hamper Russia’s productivity.”
Economic Impacts of War and Extreme Weather in EBRD Regions
War and extreme weather are creating a complex environment that challenges economic stability in countries supported by the European Bank for Reconstruction and Development (EBRD). Recent reports suggest a modest downward revision in GDP growth forecasts for these countries, which include emerging Europe, Central Asia, the Middle East, and Africa. The report hints at broader implications for these regions and raises important questions about future economic resilience.
Downward Adjustments in Economic Forecasts
The EBRD has adjusted its GDP growth projections to 2.8% for 2023 and 3.5% for 2025, marking a decrease of 0.2 and 0.1 percentage points respectively. This is the second consecutive downward adjustment for the lender’s region, highlighting the fragile economic climate influenced by various external factors.
Current Economic Landscape in Europe
Beata Javorcik, the EBRD’s chief economist, expresses concern regarding the overall mood in European cities, noting that the continent is affected by:
- Growing conflict, specifically in regions like the Middle East.
- High energy costs, with gas prices in Europe remaining significantly higher than those in the United States, even though they have moderated since their peak following the Russian invasion of Ukraine.
This atmosphere contributes to a sense of crisis across Europe, which is evident in both citizen sentiment and economic performance.
Mining Production and Climate Challenges
Stagnant mining production in countries like Kazakhstan and Uzbekistan is another factor hampering economic growth. Additionally, extreme weather events, including severe droughts in Morocco and Tunisia, exacerbate the situation and contribute to an uncertain economic outlook.
Impact of Chinese Stimulus on EBRD Countries
Despite the hurdles, there is potential for recovery and growth. Javorcik notes that Chinese stimulus packages may provide a boost for EBRD countries that rely on exporting raw materials. Continued investment from China, especially in Hungary, Serbia, and Morocco, could increase significantly if global trade policies lead to barriers against imports from China.
Geopolitical Conflicts and Economic Risks
The ongoing conflicts in the Middle East, particularly the situation between Israel and Hezbollah, pose further risks. Javorcik points out that:
- The expansion of this crisis could deepen Lebanon’s political and economic turmoil.
- Neighboring countries such as Jordan and Egypt may experience heightened economic risks due to increased borrowing costs.
This geopolitical instability not only threatens immediate regional safety but could also impede long-term economic development.
Effects on Ukrainian Economic Growth
The EBRD has revised Ukraine’s growth forecast for 2025 down by 1.3 percentage points to 4.7%, a decline attributed to persistent attacks on the country’s energy infrastructure. The invasion has led to:
- Increased energy costs due to reliance on expensive imported electricity.
- Frequent power outages and rolling blackouts impacting energy-intensive industries.
Russian Economic Performance Amid Sanctions
In contrast, the EBRD has reported unexpected growth for Russia, predicting a 4.7% growth rate in the first half of 2024. This rebound is partly driven by rising oil export prices, which have increased by over 10% year-on-year. However, the report highlights that the discount on Russian oil that importers once enjoyed has now vanished, raising questions about the effectiveness of Western sanctions.
Sanctions and their Cumulative Effect
While sanctions are slowly affecting Russian economic productivity, analysts, including Javorcik, assert that the impacts are cumulative. The journey to economic normalization in the region will be gradual and include:
- Pressure on Russian productivity and industry due to restrictions.
- Potential long-term effects on global oil markets.
Conclusion on Economic Resilience
As the EBRD countries navigate the repercussions of war and extreme weather, the outlook remains challenging. Persisting conflicts, extreme weather conditions, and geopolitical shifts contribute to low growth expectations and economic uncertainty.
Practical Tips for Navigating Economic Challenges
- Investing in diverse sectors can help mitigate risks associated with concentrated economic dependence.
- Engaging in multilateral trade agreements may bolster economic resilience against sudden market fluctuations.
- Fostering local innovation and strengthening infrastructure can enhance stability amid external shocks.
Key Insights from EBRD Report
| Country | 2023 GDP Growth (%) | 2025 GDP Growth (%) |
|---|---|---|
| Ukraine | Revised Down to 2.8 | 4.7 |
| Kazakhstan | Stagnant | Varies |
| Russia | 4.7 | Expected Increases |
| Morocco | Adverse Effects from Drought | Varies |
| Tunisia | Adverse Effects from Drought | Varies |