European Bank for Reconstruction and Development Projects Economic Growth Amid US-China Trade Tensions

The European Bank for Reconstruction and Development (EBRD) has released a report projecting economic expansion across its regions, with growth expected to rise from an estimated 3.4% in 2025 to 3.6% in 2026, culminating at 3.7% in 2027. This marks a 0.2% upward revision for the current year compared to previous forecasts. EBRD Chief Economist Beata Javorcik noted that geopolitical fragmentation has not significantly hindered global commerce, stating, "Economies across the EBRD regions are proving more adaptable in the face of persistent trade tensions than many expected."

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While the overall outlook is positive, performance varies significantly across different regions. Central Asia is projected to outperform with a growth rate of 5.6% in 2026, supported by strong consumer spending and remittance inflows. In contrast, Eastern Europe and the Caucasus face a more cautious outlook, with growth estimated at 2.9% for 2026. Ukraine's economic forecast has been revised down to 2.5%, reflecting the long-term challenges posed by ongoing conflict. Turkey is expected to achieve a 4.0% growth rate, while the Southern and Eastern Mediterranean region's forecast has been lifted to 4.2%.

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A significant theme in the EBRD report is the ongoing economic standoff between the United States and China. As bilateral trade volumes between these two powers contracted throughout 2025, American importers sought alternative suppliers, leading to increased exports from several EBRD economies, including computers and mobile phones. Conversely, Chinese manufacturers have expanded their presence in EBRD territories, leveraging competitive pricing to capture market share. Javorcik remarked on the initial concerns regarding redirected Chinese exports, stating, "these fears do not seem to have materialised in the context of emerging Europe."

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Domestic factors are also contributing to the improved economic forecasts. Average inflation across EBRD regions has cooled to 5.5% as of December 2025, aided by moderating wage growth and positive real interest rates. This disinflationary trend is gradually restoring consumer purchasing power. Additionally, capital expenditure is expected to drive growth, particularly in Central Europe and the Baltic states, where economic activity is anticipated to accelerate to 2.9% in 2026 due to increased investment linked to the EU's Recovery and Resilience Facility.

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Despite the optimistic projections, EBRD economists caution that the macroeconomic fallout from recent US tariff implementations may still emerge. The report highlights that American buyers frontloaded import orders in early 2025 to avoid rising duties, which could obscure the long-term impact on international demand.

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• "Economies across the EBRD regions are proving more adaptable in the face of persistent trade tensions than many expected." — Beata Javorcik, Chief Economist, EBRD

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• "These fears do not seem to have materialised in the context of emerging Europe." — Beata Javorcik, Chief Economist, EBRD

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This report underscores the resilience of EBRD economies amid global trade tensions, while also highlighting the need for caution regarding future economic developments.

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