Reinforcing Europe’s financial resilience – and growth potential

The World Bank has forecast a slowdown in economic growth for Europe and Central Asia, with expansion expected to decelerate to 2.2% in 2026 from 2.6% in 2025. This reduction in growth is widespread across the region, driven by factors such as higher energy prices, market uncertainties, and weaker performance in trading partners.

Excluding Russia, which contributes around 40% of the region's output, growth is anticipated to slow to 3% in 2026 from 3.7% in 2025. Despite these challenges, the World Bank maintains confidence in the region's resilience, crediting reduced energy intensity, government policies, and strong domestic demand.

To address demographic pressures and bolster productivity, the institution advises countries to leverage artificial intelligence (AI) by enhancing foundational education and managerial skills. This adaptation, coupled with improved labor market and social protection institutions, could help mitigate the impact of a shrinking working-age population.

Notably, Central Asia is the fastest-growing subregion within Europe and Central Asia, with an estimated expansion of 5.8% in 2026, with Kyrgyzstan and Uzbekistan leading the growth at 9.6% and 7.9% respectively. Meanwhile, the Western Balkans and Poland are expected to witness a strengthening of growth rates in 2026, with 3.1% and 3.6% respectively.

However, growth in Ukraine is projected to decelerate to 1.2% due to ongoing infrastructure damage and export disruptions. The region is grappling with elevated inflation driven by higher energy costs, sluggish EU growth, and increased competition. The World Bank highlights additional risks stemming from potential trade disruptions, ongoing conflict in Ukraine, surging energy and transport costs, tighter global financing conditions, and adverse weather events.