US-China trade tensions have not hindered Europe's growth prospects

EBRD Region Economic Outlook: Growth Accelerates Despite Global Uncertainties

Economic activity within the EBRD regions is expected to strengthen over the next two years, surpassing previous concerns about a sharp downturn caused by global trade tensions.

The latest EBRD report, published Thursday, predicts overall growth will climb from an estimated 3.4% in 2025 to 3.6% in 2026, reaching 3.7% by 2027. This marks a 0.2% increase for the current year compared to the bank’s September projections.

The report highlights that geopolitical divisions have had a less severe effect on international trade than financial markets initially anticipated.

Beata Javorcik, the EBRD’s chief economist, commented, “Economies in the EBRD regions are demonstrating greater resilience to ongoing trade frictions than many had forecast.” She noted that the US market is not a primary destination for most EBRD countries, so American trade policies mainly impact emerging Europe indirectly.

In an interview with Euronews, Javorcik explained, “US tariffs influence German exports, which depend on goods and services sourced from Central Europe—a region deeply embedded in German supply chains.”

Regional Differences in Economic Performance

Although the overall outlook is positive, growth rates vary widely across different areas.

Central Asia stands out, maintaining strong momentum even as growth moderates to a projected 5.6% in 2026 following a robust 6.9% expansion last year.

This region continues to benefit from healthy consumer demand, expanding credit, and steady remittance flows.

Meanwhile, Eastern Europe and the Caucasus face a more cautious outlook, with regional growth expected at 2.9% for 2026.

The EBRD has lowered its forecast for Ukraine to 2.5% this year, suggesting that any economic gains from future peace agreements will take time to materialize.

Elsewhere, Turkey is forecast to achieve a 4.0% growth rate in 2026, navigating challenges from strict monetary policy and market fluctuations. The Southern and Eastern Mediterranean region has seen its growth outlook raised to 4.2%.

Changing Trade Patterns

The report underscores the escalating economic rivalry between the US and China as a central theme.

As trade between the two superpowers declined throughout 2025, US importers actively sought new suppliers.

This shift allowed several EBRD countries to boost their exports of electronics, precious metals, and other goods to the US.

At the same time, Chinese manufacturers expanded their presence in EBRD markets, taking advantage of excess production capacity and competitive pricing.

When asked by Euronews, the EBRD’s chief economist noted widespread concerns that Chinese exports, blocked from the US, might flood other markets. However, Javorcik clarified that these fears have not materialized in emerging Europe, though China remains a formidable competitor both domestically and internationally.

EBRD economists also warn that the broader economic effects of recent US tariffs could still emerge.

The report observes that US buyers accelerated their imports early in 2025 to avoid higher tariffs, a move that may temporarily mask the lasting effects on global demand.

Inflation Trends and Investment Driving Growth

Domestic developments are also contributing to improved economic forecasts.

Average inflation across EBRD regions eased to 5.5% by December 2025. This cooling trend, supported by slower wage increases and positive real interest rates, is gradually restoring consumer purchasing power.

Investment remains a key driver of growth. Central Europe and the Baltic states are expected to see economic activity rise to 2.9% in 2026, largely due to increased investment as governments work to meet deadlines for the EU’s Recovery and Resilience Facility.

Similarly, major public infrastructure projects are projected to boost growth in the Western Balkans to 3.1% this year.