The EBRD lowers its growth forecasts in the face of the energy shock

The European Bank for Reconstruction and Development (EBRD), which invests in emerging economies from central and eastern Europe to Central Asia, the Middle East and North Africa, has cut its growth forecasts for its regions, citing the escalating conflict in the Middle East as a major source of disruption economical.

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In its latest report on the regional economic outlook, entitled “Strai(gh)t talk”, the EBRD forecasts aggregate growth of 3.1% in 2026 in its regions, compared to 3.4% in 2025 and 0.5 points less than the published forecast in February.

Growth is expected to rise to 3.6% in 2027, although this projection is also slightly lower than previous estimates.

According to the report, rising oil and gas prices, disruptions to maritime traffic in the Strait of Hormuz and the growing gap between energy costs in Europe and the United States have undermined competitiveness and slowed economic dynamics in many countries.

The EBRD estimates that growth in its regions slowed to 2.9% year-on-year in the first quarter of 2026. Below-expected performance was recorded in several large economies, including Egypt, Kazakhstan, Romania, Turkey and Ukraine.

“The conflict in the Middle East has inflicted a new shock on regions already facing weak manufacturing industries and fragile fiscal positions,†EBRD chief economist Beata Javorcik said in comments accompanying the new report.

Inflation worsens and borrowing costs rise

The report highlights a further rise in inflation after a phase of moderation at the end of 2025.

Average inflation across EBRD regions rose to 6.4% between February and April 2026, an increase of 1.2 percentage points.

According to the bank, rising energy and food prices were the main driver, with currency depreciation against the US dollar adding further pressure in some economies.

The EBRD warns that inflation is likely to remain high for longer than expected, particularly because food and energy account for a larger share of household spending in many of its economies than in advanced countries.

Nearly two-thirds of EBRD economies have measures in place to support consumers or reduce energy consumption, such as caps on fuel prices, tax cuts and targeted subsidies.

But the bank warns that public finances are under increasing strain.

Rising energy costs, higher borrowing costs and tighter global financial conditions are increasing pressures, particularly in already highly indebted economies.

Looking ahead, the report warns, protracted conflict could cause further increases in energy prices, worsen supply chain disruptions and further weigh on growth prospects across all regions where the EBRD is present.