EBRD lowers regional economic outlook - Tariffs, global uncertainty and high inflation, the main causes
The European Bank for Reconstruction and Development (EBRD) lowered its regional economic forecast for this year by 0.2% in its latest report, compared to its February 2025 outlook.
The bank now expects growth in the EBRD regions to be around 3% in 2025, before rising slightly to 3.4% in 2026.
This negative outlook is largely due to the impact of rising tariffs and ongoing geopolitical uncertainty on supply chains and trade. Slow external demand has also had an impact on this outlook.
Strong domestic demand, loose fiscal policies and robust nominal wage growth are also driving inflation in the EBRD regions. After a decline to 5.3% in September 2024, average inflation rose to 6.1% in February this year.
Average debt in the EBRD regions is likely to remain broadly stable at around 52% of gross domestic product (GDP) over the next four years. However, this outlook assumes that governments will announce tighter fiscal policies, which should also include increases in industrial policies, defense spending and interest payments, while some spending areas see cuts.
US tariffs have the potential to impact global supply chains, particularly in key European economies such as Germany. However, trade diversion, particularly through countries with relatively lower tariffs, could help offset and spread the impact of higher US tariffs.
According to the EBRD, "the average effective US tariff on imports from the Bank's regions is estimated to increase from 1.8 percent in 2024 to 10.5 percent, assuming unchanged export composition."
Official EBRD sources said in a press release that "although understanding the full macroeconomic effects of the tariffs will take time, it is already clear that our regions have entered a period of increased uncertainty and slower growth. Reducing trade tensions through constructive dialogue and achieving consensus on trade policy among key stakeholders are essential, as prolonged uncertainty carries painful economic costs," officials from the Bank said.
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