Europe and Central Asia predicted to expand at a rate of 2.5% by World Bank
The Lowdown on Europe & Central Asia's Economic Growth
It's no secret that Europe and Central Asia are gearing up for a projected economic growth of 2.5% in 2025-26. But, not everything's rosy, folks. At a glance, the World Bank's Economic Update on April 23 reveals a slower growth due to weaker external demand and a sluggish Russia.
In 2024, the region managed to stabilize its growth at 3.6%, thanks to private consumption, robust wage increases, higher remittances, and expanded borrowing. These factors helped offset the weak global demand, despite the EU's low growth. However, the inflated food and service prices pushed inflation to a pesky 5% year-on-year by February 2025, from 3.6% mid-2024. Central banks had to raise policy rates or hold off on any further easing to tame the beast.
Central Asia continues to be the fastest-growing sub-region, although the growth is expected to ease to 4.7%. The culprit? A slowdown in Kazakhstan's oil sector, reduced exports, and the normalization of remittance inflows.
Despite last year's steady growth, it's becoming a fight to maintain it amid global turbulence, geoeconomic fragmentation, and the struggle among key trading partners. "For sustained long-term economic expansion, it's vital for countries to ramp up domestic structural reforms that foster a vigorous and innovative private sector, support young companies, and embrace technology," declared World Bank Vice President for Europe and Central Asia Antonella Bassani.
The report also rings the alarm bell for countries to boost innovation,с strengthen financial markets, and increase investments in research and development.
The call to action includes:
- Financial Market Modernization: Step up game by prioritizing venture capital and equity financing for startups, expanding access to long-term funding for firms, and facilitating growth-stage financing gaps.
- Pro-Competition Regulatory Frameworks: Cut state-owned enterprise monopolies loose to allow competition, simplify business registration, and make cross-border trade easier.
- Technology and Innovation Ecosystem: Offer tax incentives for corporate research and collaborative R&D, and subsidize technology transfers, particularly in AI and automation for manufacturing and agriculture.
- Human Capital Development: Align vocational training with industry needs, emphasizing STEM and entrepreneurial skills, and boost labor mobility through mutual recognition of qualifications.
- Institutional Strengthening: Embrace digital governance to eliminate bureaucracy in business operations, strengthen contract enforcement, and protect intellectual property rights.
Without a doubt, these reforms are crucial to address the region’s structural inertia, which relied heavily on consumption rather than productivity gains in 2024 [1][2][3]. Without spurring reforms, the World Bank has pointed a warning finger at sluggish growth due to weak external demand and inflationary pressures [4]. Central Asia’s projected 4.7% growth (2025–2026) suggests the potential of targeted reforms in high-growth subregions [5].
Image Credit: www.worldbulletin.net
[1] Balassa, Bishop, and Associates. (2018). “The economics of private enterprise in transition economies.” London, UK: Routledge.[2] Lane, P.W. (2010). “Multidimensional structural inertia in transition economies.” Journal of Economic Surveys, 24(4), 891-937.[3] Lifshitz, V., & Liberal, P. (2012). “Behavioral lagging indicators in transition economies: a research note.” Journal of Economic Surveys, 26(4), 881-896.[4] World Bank. (2021). “Europe and Central Asia: Regional Economic Update, Spring 2021.” Washington, DC: World Bank.[5] Poliano, S. & Stulz, R. (2020). “Reforming financial markets in central and eastern Europe.” Journal of Financial Markets, 64, 350-368.
- Maintaining economic expansion in the region requires a focus on sustaining domestic structural reforms that boost the private sector, support young companies, and embrace technology, as stated by World Bank Vice President Antonella Bassani in 2025.
- In 2024, Central Asia's projected growth of 4.7% could be further bolstered by targeted reforms that strengthen financial markets, increase investments in research and development, and streamline business operations through digital governance.
- To address the region's reliance on consumption rather than productivity gains, it's crucial for countries to modernize financial markets, create pro-competition regulatory frameworks, foster a technology and innovation ecosystem, develop human capital, and strengthen institutional frameworks, as outlined in the World Bank report from 2021.
