Growth slows in EBRD region as energy prices climb amid Iran war

The European Bank for Reconstruction and Development expects aggregate growth across its regions to slow from 3.4% in 2025 to 3.1% in 2026, before recovering to 3.6% in 2027.

The latest Regional Economic Prospects report, titled “Strai(gh)t talk,” identifies the escalation of conflict in the Middle East as the principal shock to the regional outlook.

The EBRD region covers a large area from Central Europe to Central Asia, from the Southern and Eastern Mediterranean to Sub-Saharan Africa.

Rising oil and gas prices, disruptions to shipping through the Strait of Hormuz, and the widening gap between European and US energy costs weigh on competitiveness and damp economic momentum.

Electricity prices in Europe remain significantly higher than in the US, reinforcing structural shifts in industrial production toward less energy-intensive sectors.

Weak performance persists across both advanced EU economies and EBRD economies in the EU.

Year-on-year growth across the regions in the first quarter of 2026 is estimated at 2.9%, with weaker-than-expected results recorded in Egypt, Kazakhstan, Romania, Türkiye and Ukraine.

Nearly two-thirds of the EBRD economies introduced policy measures to support consumers, including energy tax reductions and targeted subsidies.

Amid rising global trade tensions, US import tariffs rose sharply in 2025, prompting a reorientation of global trade flows.

The expansion of AI-related supply chains continues to underpin growth globally, with EBRD economies recording faster growth in AI supply-chain exports.

Average inflation jumped by 1.2 percentage points to 6.4% between February and April 2026; this trend was driven primarily by higher energy and food prices.

Currency depreciation against the US dollar has added further pressure in some economies.