London — June 3, 2026 — The European Bank for Reconstruction and Development (EBRD) has lowered its 2026 growth forecast for its regions to 3.1%, down from 3.4% in 2025, citing the impact of the escalating conflict in the Middle East. The Bank’s latest Regional Economic Prospects report, titled Strai(gh)t talk, highlights rising oil and gas prices, shipping disruptions through the Strait of Hormuz, and widening energy cost gaps between Europe and the United States as key factors weighing on competitiveness and output.
Average inflation across EBRD regions has jumped to 6.4%, driven by higher energy and food prices. Currency depreciation against the US dollar has added further pressure, with inflation now expected to remain elevated for longer than previously anticipated. “The conflict in the Middle East has delivered a new shock to regions already navigating weakness in manufacturing industries and fragile fiscal positions,” said Beata Javorcik, EBRD Chief Economist, noting that higher energy costs are squeezing competitiveness and tightening fiscal space.
Growth in the first quarter of 2026 was estimated at 2.9% year-on-year, with weaker-than-expected performances in Egypt, Kazakhstan, Romania, Türkiye, and Ukraine. Nearly two-thirds of EBRD economies have introduced policy measures to cushion consumers and conserve energy, including tax reductions, fuel price caps, and targeted subsidies.
The fiscal outlook has deteriorated, particularly in the southern and eastern Mediterranean and sub-Saharan Africa, where debt burdens were already high. Tighter global financing conditions have pushed up borrowing costs, intensifying risks for economies with elevated debt levels.
Regional projections show uneven resilience. Central Europe and the Baltic states are expected to grow 2.8% in 2026, while South-eastern EU faces a slowdown to 0.5%. The Western Balkans are forecast to expand 2.9%, supported by infrastructure projects. Central Asia remains strong at 5.6%, though sanctions weigh on Kyrgyz Republic’s outlook. Eastern Europe and the Caucasus will grow 2.8%, with Ukraine’s forecast revised down to 2.2%. Türkiye is projected at 3.5%, while the southern and eastern Mediterranean will slow to 2.5%. Sub-Saharan Africa is expected to moderate to 4.7%.
The EBRD emphasized that while growth is expected to recover to 3.6% in 2027, risks remain tilted to the downside. The report also noted the European Commission’s proposed Industrial Accelerator Act, which could strengthen competitiveness in emerging Europe, though opportunities for third countries will depend on eligibility rules yet to be determined.
