The European Bank for Reconstruction and Development (EBRD) revised its regional outlook on Sept. 25, modestly raising its growth forecast for 2025 while sounding a cautionary note about downside risks facing 2026. The bank cited stronger-than-expected performance in several economies across its remit but warned that renewed geopolitical tensions, persistent inflation spikes and the lingering effects of tariffs could blunt momentum next year.
EBRD analysts pointed to an incremental improvement in activity driven by recovering domestic demand and resilient services sectors, but underscored that rising public and private debt burdens in some countries could weigh on medium-term prospects. Additionally, the bank highlighted potential negative spillovers from protracted conflicts and supply-chain disruptions, which could push some economies toward stagflationary dynamics if energy and food price pressures persist.
The EBRD’s report also stressed the heterogeneity of the recovery: while some advanced transition economies have regained footing, others remain vulnerable to external shocks and policy constraints. The bank urged fiscal prudence, structural reforms to boost productivity, and targeted support to buffer the most exposed sectors.
The EBRD’s upward revision is an encouraging signal that policy measures and demand resilience are helping; however, the caution about 2026 is well-founded. Policymakers in the region should use the breathing room to shore up public finances and accelerate reforms that lift potential growth — relying on cyclical boosts risks a sharper downturn when external conditions sour. Investors should look for countries with credible debt trajectories and reform momentum as preferred exposures.
From a risk perspective, geopolitical shocks remain the largest tail risk. Portfolio managers should stress-test holdings in the region for energy price spikes and trade barriers, and consider increasing liquidity buffers for emerging exposures in affected countries.
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