EBRD Warns of Regional Growth Slowdown Amid Mideast Tensions
The findings are laid out in the bank's latest Regional Economic Prospects report, titled "Strai(gh)t talk," which singles out the intensifying conflict in the Middle East as the single most disruptive force reshaping the regional economic outlook. The EBRD's coverage spans an extraordinarily broad arc — stretching from Central Europe to Central Asia, and from the Southern and Eastern Mediterranean all the way to Sub-Saharan Africa.
Surging oil and gas prices, severe disruptions to shipping traffic through the Strait of Hormuz, and a widening divergence between European and US energy costs are collectively eroding industrial competitiveness and sapping broader economic momentum. Electricity prices across Europe remain dramatically elevated compared to those in the US, accelerating a structural reorientation of industrial production away from energy-intensive sectors.
The malaise is broadly distributed. Weak performance continues to characterize both advanced EU economies and EBRD member economies operating within the EU. First-quarter 2026 year-on-year growth across the regions is estimated at just 2.9%, with Egypt, Kazakhstan, Romania, Türkiye, and Ukraine all delivering results that fell short of earlier projections.
In response to the mounting cost pressures, nearly two-thirds of EBRD economies have rolled out policy interventions to cushion consumers — deploying tools including energy tax reductions and precisely targeted subsidy programs.
The global trade environment has compounded these headwinds. A sharp escalation in US import tariffs throughout 2025 has already triggered a measurable reorientation of international trade flows. On a brighter note, the relentless expansion of AI-related supply chains continues to provide a meaningful growth underpinning globally, with EBRD economies recording above-average gains in AI supply-chain exports.
Inflationary pressures have also re-emerged with force. Average inflation surged by 1.2 percentage points to reach 6.4% between February and April 2026, driven predominantly by escalating energy and food costs. In several economies, currency depreciation against the US dollar has piled on additional strain, squeezing purchasing power and inflating import costs further.
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