Projects 2.5% Economic Expansion in Europe and Central Asia for the Year
Hitting the Brakes in Europe and Central Asia: A World Bank Economic Update
An informative lowdown on the region's economic prospects by the World Bank paints a mixed picture for the Europe and Central Asia region, with growth predictions set at 2.5% for the years 2025-26. This figure reflects a softening global demand and a slowdown in Russia. Meanwhile, in 2024, the region clocked a steady 3.6% growth, bolstered by private consumption, real wage hikes, increased remittances, and expanded consumer borrowing.
Yet, the cost of living has been on the rise, with food and service prices jacking up inflation to a whopping 5%, year-on-year by February 2025—a stark increase from its mid-2024 level of 3.6%. Responding to this inflationary surge, various central banks have resorted to a few tactics – raising policy rates or deferring planned easing.
Looking ahead, Central Asia shows promise as the fastest-growing sub-region, but anticipated growth will cool to 4.7% for 2025-26, primarily due to a slowdown in Kazakhstan's oil sector, declining exports, and the normalization of remittance inflows.
World Bank Vice President for Europe and Central Asia, Antonella Bassani, points out that while the region sustained growth last year, maintaining that momentum has become tougher in light of global uncertainties, geoeconomic division, and sluggish growth among key trade allies. The report asserts that countries in the region must prioritize long-term domestic structural reforms to nurture a thriving and innovative private sector, foster entrepreneurship, and embrace technology adoption.
A set of recommendations from the World Bank spotlights some critical areas of focus:
- Emphasize entrepreneurial spirit and innovation, particularly within young, dynamic companies, which serve as key job creators and engine of productivity growth.
- Expand access to long-term finance and venture capital in the region's underdeveloped financial market infrastructure. This financing will provide the necessary capital to support budding innovative companies and entrepreneurship.
- Boost investments in R&D to integrate cutting-edge technology, expertise, and capital into local businesses, which is essential for sustained growth and competitive edge in a rapidly evolving global environment.
- Pursue regulatory and competitive reforms to promote a healthy and competitive economic structure, and discipline incumbent firms.
- Strengthen education and human capital development to cultivate a workforce equipped for innovation and entrepreneurship.
- Encourage early collaboration with the private sector and embrace Public-Private Partnerships (PPPs) to mobilize private investment, while carefully monitoring its impact on public welfare and equity.
In conclusion, the proposed reforms aim to establish an ecosystem that caters to innovation-driven entrepreneurship, improves finance access, invests in R&D, reforms regulations and competitive frameworks, enhances education, and fosters private sector collaboration. These initiatives strive to equip firms with the tools needed to adapt to new technologies, compete effectively, and ultimately accelerate growth and economic dynamism in Europe and Central Asia.
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- To maintain growth momentum in Europe and Central Asia, it is crucial for countries in the region to focus on long-term domestic structural reforms, such as expanding access to long-term finance and venture capital, investing in research and development, and promoting a healthy and competitive economic structure.
- Strengthening education and human capital development is essential for cultivating a workforce equipped for innovation, entrepreneurship, and technology adoption, which are key factors in accelerating growth and economic dynamism in Europe and Central Asia.
