The sharpest downgrades were in Central Europe, the Baltic states, and the Western Balkans. “It's clear our regions face heightened uncertainty and slower growth,” said Beata Javorcik, EBRD Chief Economist, calling for a reduction in trade tensions through constructive dialogue.

Ukraine's forecast was revised down to 3.3%, reflecting weaker EU demand and continued damage to energy infrastructure from Russian attacks. The U.S. tariff hikes – including 25% on steel, aluminium, and cars – are expected to raise the average effective tariff on EBRD-region exports to the U.S. from 1.8% in 2024 to 10.5%.

Slovakia is projected to suffer the largest GDP impact from U.S. tariffs (–0.8%), followed by Jordan (–0.6%) and Hungary (–0.4%), primarily due to losses in the automotive sector. Even countries with limited direct exposure face risks due to supply chain disruptions and global policy uncertainty. While China's trade role is expanding, Germany remains the key export partner for many EBRD economies.

Inflation has reaccelerated to 6.1% as of February 2025, up from 5.3% in September 2024, driven by loose fiscal policy and fast wage growth. Public debt is expected to stay around 52% of GDP over the next four years, assuming fiscal discipline and spending cuts to offset rising defence, industrial, and interest-related expenditures.

The report warns that growing reliance on bond markets over concessional borrowing could increase vulnerability in lower-income countries. Defence spending has nearly doubled across EBRD regions since 2014, reaching 3.5% of GDP in 2023. Countries like the Slovak Republic, Greece, Croatia, and Hungary could see GDP gains of up to 1.5% from increased demand for domestically sourced defence goods.

In Central Europe and the Baltic states, growth is forecast at 2.4% in 2025, a downgrade from earlier projections, before rising to 2.7% in 2026. The revision reflects weaker demand from Germany and increased global policy uncertainty. In the south-eastern EU, growth is expected to rebound from 1.6% in 2024 to 2.0% in 2025 and 2.4% in 2026, with Bulgaria showing a slightly stronger outlook due to resilient domestic demand. Meanwhile, in the Western Balkans, growth is projected to ease from 3.6% in 2024 to 3.2% in 2025, before inching up to 3.4% in 2026, as political instability in Serbia and slower growth in advanced European economies weigh on the region's performance.

Here are the updated 2025 GDP growth projections:

• Poland: 3.3% (down from 3.4% in February) 
• Czechia: 1.6% (down from 1.9% in February) 
• Slovakia: 1.4% (down from 1.9% in February) 
• Hungary: 1.5% (down from 2.0% in February) 
• Romania: 1.6% (down from 1.8% in February)