Türkiye projection unchanged as EBRD cuts 2025 growth outlook

The European Bank for Reconstruction and Development (EBRD) revised on Thursday its 2025 growth forecast for its regions downward by 0.3 percentage points, citing weaker external demand, the ongoing impact of conflicts and weak reform momentum.

The lender, at the same time, kept projections for the Turkish economy unchanged.

The bank expects an average growth rate of 3.2% for this year across the economies where the bank invests, compared to 3.5% in its previous report in September last year, with projections for Central Europe, the Baltic states and the Southern and Eastern Mediterranean all lowered.

Conflicts and slow reform progress in the Southern and Eastern Mediterranean have further dampened economic prospects, it stressed.

However, regional growth is expected to recover to 3.4% in 2026, provided external conditions improve.

Rising uncertainty over potential increases in U.S. import tariffs and reciprocal trade measures has further clouded the outlook. The bank warned that higher tariffs could harm trade, investment and production across its regions.

In a scenario where the United States imposes a universal 10 percentage point tariff hike, gross domestic product (GDP) in EBRD regions could decline by 0.1% to 0.2% in the short term, the bank said.

Looking beyond uncertainty, the short-term impact of tariffs and trade restrictions on individual economies will depend on whether tariffs are applied universally or just to selected trading partners, according to the lender.

Countries with significant trade exposure to the U.S., such as Jordan, Hungary, Lithuania and Slovakia, would be the most affected. These impacts could be exacerbated by weaker growth in key global partners like Germany and China, although some losses may be offset by a stronger U.S. dollar.

Moreover, the report shows that Bulgaria, Slovenia and Romania are the most exposed to recently announced increases in U.S. tariffs on steel and aluminum.

Selective tariffs could offer mixed outcomes, with some economies potentially benefiting from trade diversion and increased foreign direct investment (FDI) due to privileged access to the U.S. market, according to the EBRD.

“While inflation has dropped notably, the sources of inflationary pressures have shifted,” says Beata Javorcik, the EBRD’s chief economist. “Fiscal policy and wage dynamics now play a much greater role, and the path ahead requires careful policy calibration to ensure a stable growth trajectory.”

Although the moderation of inflation has been largely in line with expectations, the report flags the fact that interest rates – including rates in the United States – have been declining more slowly than previously anticipated.

Growth projections differ

Central Europe and the Baltic states are forecast to grow by 2.7% in 2025 and 2.8% in 2026, supported by resilient labor markets despite weak manufacturing and exports. In the southeastern EU countries, growth is expected to reach 2.1% in 2025 and 2.4% in 2026, following weaker-than-expected performance and modest expansion of 1.5% last year.

The growth in Western Balkans is projected to remain stable at 3.6% in both 2025 and 2026, while Central Asia is forecast to grow 5.7% in 2025 before moderating to 5.2% in 2026, with limited contributions from intermediated trade.

In Eastern Europe and the Caucasus, growth is expected to slow to 3.6% in 2025 but recover to 4.3% in 2026, with Ukraine’s prospects remaining subdued due to the ongoing destruction of infrastructure caused by Russia’s war.

Ukraine’s 2025 forecast has been revised downward by 1.2 percentage points owing to damage to electricity infrastructure caused by Russia’s attacks. GDP growth is projected to average 3.5% in 2025 before rising to 5.0% in 2026 if a cease-fire is in place by the end of this year, the bank said.

Türkiye’s economy is forecast to grow by 3% this year and 3.5% next year as tighter monetary policy stabilizes inflation and supports wage growth.

In the Southern and Eastern Mediterranean, growth is estimated to have averaged 2.5% in 2024, affected by conflicts and slow progress with reforms. Growth is expected to recover to 3.7% in 2025 and 4.1% in 2026.