London: The European Bank for Reconstruction and Development (EBRD) on Tuesday lowered its regional economic forecast for 2025 by 0.2 percentage points due to heightened trade policy uncertainty. The EBRD revised its growth expectations to 3% for 2025, attributing the change to tariff hikes and global policy uncertainty that have impacted trade and stressed supply chains.
According to Anadolu Agency, the bank's Regional Economic Prospects report noted a previous 0.3 percentage point cut in February, highlighting a combination of global challenges under the report titled 'Uncertain times.' These challenges include increased trade and economic policy uncertainty, reduced external demand, and the effects of recent tariff announcements.
EBRD's Chief Economist, Beata Javorcik, indicated that while the full macroeconomic implications of the newly announced tariffs are yet to be understood, it is evident that the regions are facing heightened uncertainty and slower growth. Javorcik emphasized the importance of reducing trade tensions through dialogue and consensus among stakeholders to avoid economic costs associated with prolonged uncertainty.
Despite these adjustments, the bank maintained its 2026 growth forecast at 3.4%. The report also projected that Slovakia would experience the largest direct GDP impact from US tariff increases at 0.8%, followed by Jordan at 0.6% and Hungary at 0.4%.
Inflation trends in the EBRD regions showed a concerning uptick. After reaching a peak of 17.5% in late 2022 and decreasing to 5.3% by September 2024, average inflation rose again to 6.1% in February 2025. The report identified demand-driven pressures, loose fiscal policies, and strong nominal wage growth as contributing factors.
The report also highlighted increased defense spending across EBRD economies due to geopolitical concerns, with defense budgets nearly doubling from 1.8% of GDP in 2014 to over 3.5% in 2023. Arms exports from the region rose from 0.05% of GDP in 2019 to 0.09% in 2024, with Slovakia, Czechia, Poland, and Bosnia and Herzegovina leading in export volumes.
The report suggested that domestic sourcing and increased defense spending could boost GDP in Slovakia, Greece, Croatia, and Hungary by 1.0 to 1.5%. Additionally, Trkiye's growth forecast was reduced by 0.2 percentage points to 2.8% for 2025, due to tighter monetary policy and decreased domestic and external demand.