EBRD Lowers Economic Growth Forecasts Amid Global Concerns

By Libby George

LONDON (Reuters) – Tariffs, wars, and economic worries in major economies like Germany and China have prompted the European Bank for Reconstruction and Development (EBRD) to reduce its economic growth forecasts for the fourth consecutive time, the lender announced on Tuesday.

In its report, covering emerging Europe, Central Asia, the Middle East, and Africa, the EBRD revised its previous 2025 forecast down by 0.2 percentage points to 3%, with most economies reflecting downward adjustments.

“Almost no country remains untouched by what’s happening in the world,” stated EBRD Chief Economist Beata Javorcik. “The biggest effect on our countries is indirect via changes in prospects for Germany and China.”

Countries like Slovakia and Hungary are expected to suffer the most directly from U.S. tariff increases, with growth forecasts for 2025 cut down by 0.5 percentage points to 1.4% and 1.5%, respectively. These nations are heavily dependent on the automotive sector.

The report was prepared prior to the recent news of the U.S. and China reaching a temporary agreement to reduce tariffs.

“Firms are halting investments and waiting to see what will happen,” Javorcik noted. “We have shifted from a mindset focused on the resilience of global value chains in terms of supply security to one where market access has become the key concern.”

Ongoing projects are experiencing delays, even as the U.S. paused new “reciprocal” tariffs and expressed readiness to negotiate additional levies initially imposed to persuade firms to relocate manufacturing back to the U.S.

The economic impacts on Germany, China, and other significant European economies loom large; Germany is the top trading partner for ten EBRD economies, with exports accounting for nearly a quarter of GDP in the Czech Republic and close to 20% in Slovakia and Hungary.

While Europe’s push to increase defense spending may benefit specific countries like Poland, Turkey, and the Czech Republic, Javorcik warned of the risk that elevated defense expenditure could crowd out other spending.

Though the IMF anticipates that average debt in EBRD regions will remain stable at 52% of GDP from 2025 to 2029, Javorcik highlighted that this projection may be overly optimistic given current realities.

She pointed out that the IMF expects revenues to stay high, suggesting new spending would be offset by cuts elsewhere.

“We believe some budget deficits are likely to be higher,” she stated.

Javorcik emphasized the risks of rising debt levels and countries’ reliance on international bond markets; for instance, Egypt is spending 13% of its GDP on debt servicing.

“If there is a flight to safety, and investors turn to safer havens, our countries might face considerable exposure to that shock,” she indicated during a panel at the EBRD annual meeting.