EBRD Growth Forecast Drops Amid Middle East Conflict and Energy Price Surge
The European Bank for Reconstruction and Development (EBRD) has revised its growth forecasts downward, citing increased economic disruption from the Iran conflict and soaring energy prices. Inflation has surged to 6.4% across EBRD regions, affecting competitiveness and economic momentum.
The European Bank for Reconstruction and Development (EBRD) has recently adjusted its economic growth forecasts, projecting a sharper slowdown across its regions due to the ongoing conflict in the Middle East and subsequent energy price hikes. The bank, which invests in emerging economies ranging from central and eastern Europe to Central Asia, the Middle East, and North Africa, identified these issues as major disruptors to economic stability.
In its latest Regional Economic Prospects report, aptly titled "Strai(gh)t Talk," the EBRD forecasts a growth of 3.1% in 2026, a decrease from the 3.4% predicted for 2025, and 0.5% lower than the forecast released in February. A slight recovery to 3.6% is anticipated in 2027, though this too falls short of previous predictions.
The report highlights the impact of escalating oil and gas prices, disruptions in shipping through the Strait of Hormuz, and increasing disparities between European and US energy costs that have collectively undermined competitiveness and slowed economic momentum.
Economic growth in EBRD regions reportedly slowed to 2.9% year-on-year in the first quarter of 2026, with weaker-than-expected performances in major economies such as Egypt, Kazakhstan, Romania, Turkey, and Ukraine. EBRD Chief Economist Beata Javorcik noted, "The conflict in the Middle East has delivered a new shock to regions already navigating weakness in manufacturing industries and fragile fiscal positions."
The inflation outlook has also deteriorated, with average inflation rising to 6.4% between February and April 2026, driven by higher energy and food prices. The depreciation of local currencies against the US dollar has exacerbated inflationary pressures in some economies. The EBRD warns that elevated inflation levels are likely to persist longer than initially anticipated, primarily because food and energy constitute a larger portion of household spending in these regions compared to advanced markets.
To mitigate these pressures, nearly two-thirds of EBRD's economies have implemented measures such as fuel price caps, tax reductions, and targeted subsidies. However, these interventions have stretched public finances, with higher energy costs, rising borrowing expenses, and tighter global financial conditions intensifying fiscal strain, particularly in countries with already high debt levels.
Looking forward, the EBRD cautions that a prolonged conflict could further elevate energy prices, exacerbate supply chain disruptions, and place additional burdens on growth prospects throughout its regions. The ongoing challenges underline the need for strategic economic adjustments to navigate these turbulent times effectively.