Top Economic Threats Facing EBRD Nations in Europe

Economic Challenges in Central Europe

Several Central European countries, including Hungary, Romania, and Slovenia, are facing a decline in their economic prospects due to rising trade tariffs and increased competition from China. This is highlighted in the latest outlook from the European Bank for Reconstruction and Development (EBRD). While growth in the 43 countries where the EBRD invests improved slightly from 2.8% in 2024 to 3.3% in the first half of 2025, the organization anticipates a significant slowdown in the second half of the year across its regions.

The EBRD’s forecast includes areas such as Central Asia, the Southern and Eastern Mediterranean, South-Eastern Europe, Central Europe, and the Baltic states. However, it does not cover recently joined regions like sub-Saharan Africa and Iraq. The main challenges include ongoing trade tensions and weakening global demand. Despite this, the EBRD expects growth to recover in 2026, with output projected to grow by 3.1% this year and 3.3% in 2026.

Countries Most Affected

Several countries have seen their growth forecasts revised downward. For instance, Slovenia's growth outlook was cut by 1.2%, with its economy expected to expand by just 0.7%. This decline is attributed to a significant drop in exports to the US, which accounts for 1% of GDP. Similarly, Hungary saw its forecast reduced by 1%, with only 0.5% growth predicted for the year. Lagging investments and higher financing costs have contributed to this situation, along with weakness from Germany's manufacturing sector.

Latvia and Estonia also experienced downward revisions, with 0.9% and 0.8% respectively. The nine countries in Central Europe and the Baltic states are expected to grow by 2.4% in 2025 and 2.7% in 2026. These projections are influenced by weaker external demand, budget cuts, and higher US tariffs affecting trade. However, the EBRD suggests that higher infrastructure investment could help offset these challenges.

Better Prospects in Certain Regions

In contrast, some countries show more positive outlooks. Poland, for example, has had its forecast revised upward by 0.2%, expecting 2.5% growth this year. Lithuania’s 2026 outlook was also raised by 0.6%. According to EBRD Chief Economist Beata Javorcik, these countries benefit from diversified economies and substantial public investment.

Poland’s growth is supported by infrastructure projects, including energy transition initiatives, rail developments, and defence-related works. Meanwhile, Ukraine’s outlook was cut by 0.8% to 2.5% growth this year, primarily due to the impact of ongoing Russian aggression and weak harvests.

Regional Outlooks

In the South-Eastern EU, including Bulgaria, Greece, and Romania, growth forecasts were reduced by 0.3% this year and 0.5% for 2026. Lower exports are being balanced by stronger investment, but Romania remains in the weakest position. The EBRD recommends that Romania fully utilize EU funds to stimulate growth, with an expected average GDP growth of 1.7% in 2025 and 1.9% in 2026 for the region.

Main Risks for EBRD Countries

Trade tensions remain a key concern for EBRD countries, particularly in Europe. Nearly all EU exports to the US face a 15% tariff as of the end of August 2025. While this has provided a short-term boost, it is expected to hurt long-term output. Additionally, increased competition from China poses a challenge, as it accounts for a quarter of global exports and competes directly with European products.

Over the past decade, China has expanded its exports of cars and batteries, sectors important for several EBRD regions. However, there are opportunities as well. The US seeks to reduce dependence on Chinese suppliers, potentially opening new markets for Eastern European countries. Furthermore, Chinese investments in European countries could bring benefits, as suggested by the Draghi report, which advocates for increased Chinese foreign direct investment in car manufacturing and technology transfer.

Potential Boosters for European Economies

Javorcik noted that while US trade policies pose threats, they also present opportunities. Higher tariffs could push European countries to export goods previously sourced from China. In addition, increased defence spending is viewed as a potential growth driver. However, the effectiveness of this depends on three factors: directing spending towards infrastructure and energy security, balancing imports with local purchases, and investing in future defence technologies through R&D.

By focusing on these areas, European countries can enhance their economic resilience and stimulate long-term growth.