Economic growth across the European Bank for Reconstruction and Development's regions is expected to slow more sharply than previously forecast this year, largely due to higher inflation linked to the Iran war, which has pushed up energy prices. Inflation across the bank's regions rose to 6.4%.
The European Bank for Reconstruction and Development (EBRD), which invests across emerging economies spanning central and eastern Europe, Central Asia, the Middle East and North Africa, has lowered its growth forecasts for its regions, citing the escalating conflict in the Middle East as a major source of economic disruption.
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In its latest Regional Economic Prospects report, titled "Strai(gh)t talk", the EBRD forecasts aggregate growth across its regions at 3.1% in 2026, down from 3.4% in 2025 and 0.5% below the forecast published back in February.
Growth is expected to recover to 3.6% in 2027, although that projection is also slightly lower than previously anticipated.
According to the report, rising oil and gas prices, disruptions to shipping through the Strait of Hormuz and widening differences between European and US energy costs have weakened competitiveness and slowed economic momentum across many economies.
The EBRD estimates that growth across its regions slowed to 2.9% year on year in the first quarter of 2026. Weaker-than-expected performances were recorded in several large economies, including Egypt, Kazakhstan, Romania, Turkey and Ukraine.
"The conflict in the Middle East has delivered a new shock to regions already navigating weakness in manufacturing industries and fragile fiscal positions," EBRD Chief Economist Beata Javorcik said in comments accompanying the new report.
Inflation outlook deteriorates, and borrowing costs rise
The report highlights a renewed rise in inflation after a period of moderation in late 2025.
Average inflation across the EBRD regions increased to 6.4% between February and April 2026, up by 1.2%.
According to the bank, higher energy and food prices were the main drivers, with currency depreciation against the US dollar adding further pressure in some economies.
The EBRD warned that inflation is likely to remain elevated for longer than previously expected, particularly because food and energy account for a larger share of household spending in many of its economies than in advanced markets.
Almost two-thirds of the EBRD's economies have introduced measures to support consumers or reduce energy consumption, including fuel price caps, tax reductions and targeted subsidies.
However, the bank warned that public finances are coming under increasing strain.
Higher energy costs, rising borrowing expenses and tighter global financial conditions are adding pressure, particularly in economies that already have elevated debt levels.
Looking ahead, the report cautions that a prolonged conflict could trigger further increases in energy prices, deepen supply chain disruptions and place additional pressure on growth prospects across the EBRD regions.
