World Bank: Europe and Central Asia Economic Update

Europe and Central Asia Economic Update

SLUGGISH GROWTH, RISING RISKS

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Overview

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Economic growth for the emerging market and developing economies across Europe and Central Asia has been revised up to 2.4% for 2023, in the World Bank's latest economic forecast for the region. This pickup in growth reflects improved forecasts for war-hit Ukraine and for Central Asia, as well as consumer resiliency in Türkiye and better-than-expected growth in Russia because of a surge in government spending on the military and social transfers. However, overlapping shocks—the ongoing invasion of Ukraine, a cost-of-living crisis, climate risks and more—present formidable challenges to the region’s growth.

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GDP Forecast Highlights

  • Ukraine: Despite Russia’s invasion, Ukraine’s economy is likely to grow by 3.5% this year after a contraction of 29.1% in 2022, thanks to more stable electricity supply, increased government spending, ongoing donor support, a better harvest, and the rerouting of some exports through the country’s western borders. The loss of private sector jobs and income, high inflation, and asset loss because of the war have reversed 15 years of poverty reduction.
  • Russia: Russia’s GDP is expected to grow by 1.6% in 2023 because of resilient consumption and a surge in government spending on the military and social transfers. The country’s energy sector also contracted less than anticipated. Russia’s growth is projected to continue to be weak, at only 1.1% a year on average between 2024 and 2025, curbed by capacity constraints, tight labor, markets, and the lack of access to technology and equipment due to sanctions.
  • Türkiye: After growing by 5.5% in 2022, Türkiye’s GDP is forecast to slow to 4.2% this year, reflecting reduced policy uncertainty and resilient consumer demand. However, growth is likely to slow to an average of 3.5% in 2024 and 2025 as domestic demand cools in the face of rising interest rates and gradual fiscal consolidation. The combination of high inflation and the impact of the February 2023 earthquakes could erode prior progress on poverty reduction.
  • Central Asia: Growth in Central Asia--Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan—is expected to strengthen to 4.8% in 2023 and to average at 4.7% for 2024 and 2025, assuming inflation moderates. Risks to the region’s outlook include slower remittances from Russia as well as a deeper slowdown of the global economy leading to a slide in global commodity prices.
  • Western Balkans: Economic activity in the Western Balkans—Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia—is projected to slow to 2.5% this year, with a projected pick up to 3.3% for 2024 and 2025, reflecting moderation of inflation pressures, a gradual recovery of exports, and increasing public spending on donor-backed infrastructure projects. In 2023, consumption remained resilient in Albania, Kosovo, and Montenegro, buoyed by the recovery in tourism, but weakened in Bosnia and Herzegovina, North Macedonia, and Serbia due to weaker export demand from the EU.