The European Bank for Reconstruction and Development (EBRD) has issued a stark warning for economies across emerging Europe and Central Asia, cutting its 2025 growth forecast to just 3.0%, down from 3.2% in February. This marks the fourth consecutive downgrade, as the region faces escalating trade wars, supply chain disruptions, and geopolitical shocks.
The U.S. has imposed sweeping new tariffs including a 25% levy on cars, steel, and aluminum and a 10% hike on broader imports which are expected to ripple across global markets. For EBRD economies, the average effective U.S. tariff will jump from 1.8% to 10.5%, according to the Bank’s estimates.
Slovakia and Hungary, major auto exporters, are among the worst hit.
- Slovakia’s growth is now projected at 1.4%, with car tariffs responsible for 83% of the projected GDP loss.
- Hungary’s economy will expand by just 1.5%, with the automotive sector absorbing 41% of the damage.
- Trade tensions are also prompting companies to delay investments, leading to supply chain dislocations across the region even in countries not directly affected by U.S. trade policy.
Meanwhile, inflation is accelerating again. After falling to 5.3% in late 2024, it has now rebounded to 6.1%, driven by strong wage growth and loose fiscal policies.
Defense Budgets Soar, Growth Stalls
Another key concern is rising military expenditure. The average defense budget in EBRD regions nearly doubled between 2014 and 2023, from 1.8% to 3.5% of GDP. While this may stimulate output in select industries, it reduces fiscal space for public investment and social spending.
