Europe and Central Asia Economic Update - April 2026

Part I: Recent Developments, Policies, and Outlook

Economic growth in the developing countries of Europe and Central Asia is likely to slow in 2026 because of the impact of the conflict in the Middle East, geopolitical tensions, and trade fragmentation. Regional gross domestic product is expected to weaken to 2.1% in real terms this year, down from 2.6% in 2025 and 4% in 2024. 

This decrease reflects the economic slowdown in the Russian Federation, where growth is expected at 0.8%, while the pace of expansion elsewhere is likely to ease to 2.9% with higher energy costs tempering the growth of consumption and uncertainty affecting investment.  

Part II: Industrial Policy

Slowing productivity growth remains a serious concern for the region’s economic competitiveness, resilience, and job creation. Some policymakers in Europe and Central Asia have turned to industrial policies to promote specific sectors, activities, or firms, with the number of announced industrial policies surging since 2020. But those attempts have often lacked well-defined targeting and entrenched existing economic weaknesses. For example, nearly two-thirds of all interventions have focused on agriculture and food production rather than high-tech or capital goods—areas that drive long-term productivity growth. 

While certain tailored industrial policies—such as industrial parks or special economic zones—can help address well-identified market failures across the region, countries across Europe and Central Asia will need to press ahead with structural reforms to create jobs, build a more dynamic private sector, and boost productivity.

Key Highlights: Industrial Policy in Europe and Central Asia

• The slowdown in productivity growth across many European and Central Asian countries over the last decade has led some policymakers to supplement broad policy reforms with industrial policies—government interventions intended to promote specific sectors, activities, or firms.
• The surge in industrial policies in the region since 2020 was initially due to COVID-19 pandemic relief, while the focus has since shifted toward energy efficiency, supply-chain resilience, and national security.
• Most industrial policies across Europe and Central Asia target established, legacy sectors. Nearly two thirds of all industrial policy announcements are related to agriculture and food production, while only 10% target high-tech or capital goods. Few countries in the region target high-risk, high-reward areas of the economy.
• Countries in the region have rarely used tariffs as industrial policy tools. Instead, many governments in Europe and Central Asia use non-tariff measures, export taxes, and export bans. Domestic subsidies account for a substantial share of interventions across
• Adopting industrial policies is tempting, but the evidence on the effectiveness of such policies at delivering sustained and cost-effective structural transformation is mixed. Using tailored public inputs works best in addressing clear market failures.
• To achieve stronger growth in productivity and job creation, countries across Europe and Central Asia would need to prioritize ambitious structural reforms that help modernize the business environment, catalyze entrepreneurship, and improve the quality of education.