The World Bank has projected that economic growth in Europe and Central Asia (ECA) will slow from 2.6 percent in 2025 to 2.2 percent in 2026, reflecting higher energy prices, weaker EU demand, geopolitical uncertainty and tighter financing conditions, according to its October 2026 Europe and Central Asia Economic Update.
Excluding Russia, regional growth is expected to decline from 3.7 percent in 2025 to 3.0 percent in 2026. The World Bank forecasts a gradual recovery in regional growth to 2.4 percent in 2027 and 2.6 percent in 2028. Growth is expected to vary across the region, with Central Asia remaining the fastest-growing subregion at 5.8 percent in 2026. The Western Balkans are projected to expand by 3.1 percent, while Romania's economy is expected to contract by 0.5 percent. Growth in Russia and Ukraine is forecast at 0.8 percent and 1.2 percent, respectively.
Regional consumption growth slows while investment increases
According to the report, regional consumption growth is projected to slow from 5.9 percent in 2025 to four percent in 2026 due to weaker real wage growth and reduced support from remittances and government transfers. Meanwhile, investment is expected to increase by 6.8 percent, mainly supported by public spending on energy and transport infrastructure and EU funding. Private investment remains constrained by geopolitical uncertainty, higher energy costs and restrictive financing conditions, although energy, digital infrastructure and industrial projects continue to attract investment. The World Bank also identified persistent labor shortages in manufacturing, construction, transport and skilled occupations as structural constraints on economic activity.
Median annual inflation in the region reached 5.4 percent in August 2026, with higher transportation costs accounting for approximately one-fifth of headline inflation. The World Bank warned that continued increases in energy, freight, food and fertilizer costs, along with disruptions to fuel supplies and Black Sea grain exports, remain significant downside risks.
Regarding Turkey, the World Bank expects economic growth to slow from 3.7 percent in 2025 to 2.8 percent in 2026 as restrictive economic policies, tight credit conditions, weaker real wage growth and higher imported energy costs weigh on domestic demand. Turkish exports have also remained subdued due to weak EU demand, geopolitical uncertainty and stronger international competition, particularly in automotive supply chains. Annual inflation declined to 31.5 percent in August 2026, according to the report. The World Bank expects Turkey's economic growth to recover to 3.8 percent in 2027 and 4.5 percent in 2028, supported by easing inflation, improved financing conditions, stronger domestic demand and a recovery in demand from the EU.
The report also examined the potential of artificial intelligence (AI) to improve productivity and business performance across the region. Approximately 20 percent of workers in ECA are employed in occupations meaningfully exposed to generative AI, although the World Bank noted that exposure does not necessarily result in job displacement.
