Regions covered by the European Bank for Reconstruction and Development (EBRD) are expected to grow less than earlier estimated in 2024, clouded by two wars and high borrowing costs, the lender said Wednesday.
The EBRD, which covers economic trends across emerging Europe, Central Asia, the Middle East and Africa, still forecasts economic growth of 3% across the 40 or so countries where it operates, above 2.5% in 2023, according to its semi-annual report.
But that forecast is 0.2 percentage points lower than in its September report. Fresh GDP projections came on the second day of the London-based bank's annual meeting, held this year in the Armenian capital of Yerevan.
"This year is going to be better. But of course, there is a lot of uncertainty," EBRD chief economist Beata Javorcik said.
"The sad news is that our countries of operation are now affected by a fallout of not one, but two wars: the war in Ukraine and the war in Gaza," Javorcik told Reuters.
The downward revision is due in part to slower-than-expected growth in central Europe and the Baltic states, a knock-on effect from Germany's weak growth.
Gaza spillovers and slowing reform progress in Egypt are also hindering economic expansion in the southern and eastern Mediterranean, the EBRD said, lowering projected growth there to 3.4% in 2024 and 3.9% in 2025.
Egypt's Suez Canal revenue has fallen, while a drop in tourism to Lebanon and Jordan "may prove lasting," the bank said.
Meanwhile, geopolitical shifts are impacting investment flows, with China's share of foreign direct investment into EBRD regions spiking to 39% in 2023 from less than 10% in 2022 – with Egypt, Morocco and Serbia benefiting.
Javorcik said Poland and Croatia stood out, with growth expected to accelerate in both to 2.9% in 2024 as inflation moderates and Croatia's tourism revenues jump 40% from pre-COVID-19 levels.
The economy of Türkiye, one of the biggest recipient countries of EBRD funds, is projected to slow from 4.5% growth in 2023 to 2.7% in 2024, followed by a slight uptick to 3% in 2025, the bank said.
The latter outlook reflects expectations of stricter monetary and fiscal policies in the face of persistently elevated inflation, it noted.
Still, high borrowing costs are making growth tough; the median yield on five-year government bonds in the EBRD region increased by 3 percentage points between early February 2022 and early April 2024.
The fallout from the war in Ukraine is also straining budgets through rising defense spending.
"We see the peace dividend essentially disappearing as countries are planning and spending more on defense," Javorcik said.
Despite Western sanctions over its Ukraine invasion, Russia's economy will grow further this year, the EBRD said.
On the other hand, Israel's war in Gaza will weigh on neighboring nations, it noted.
Russia's resilient economy is set to expand 2.5% in 2024, the EBRD predicted, adding that it was back above levels seen prior to its 2022 invasion of Ukraine.
That represented a major upgrade from the prior guidance of 1%, as Moscow offsets the impact of sanctions with vast expenditure on its war machine.
However, it still marks a significant slowdown from the 3.6% growth it registered in 2023.
"I think it was unrealistic to expect that sanctions against Russia would lead to a deep economic and financial crisis, as many had hoped," Javorcik told Agence France-Presse (AFP).
Russia has "refocused its economy on the war effort," she noted.
"So this is leading to faster growth" but "is this growth translating into greater wellbeing of its people? That's doubtful," Javorcik remarked.
Western sanctions do not function perfectly, but they have nevertheless curbed technology imports into Russia.
And more generally, the Ukraine conflict has also helped spark an exodus of both multinational companies and highly skilled labor from Russia to elsewhere, the bank added.
Javorcik highlighted that sanctions helped spark a record annual loss for Russian state energy giant Gazprom in 2023, as the European market was practically shut to its gas exports.
"Russian growth in the medium term will be lower than it would have been in the absence of sanctions," she concluded.
The EBRD, founded in 1991 to help former Soviet bloc countries switch to free-market economies, has since extended its reach and now includes countries in the Middle East and North Africa.
The lender, which invests alongside the private sector, has an operating area that spans Central and Eastern Europe, the Southern and Eastern Mediterranean, and Central Asia.
The institution forecast Wednesday that Mediterranean countries will be hampered due to delays in public investment projects in Egypt and the war in Gaza.
"The conflict's negative effects on tourism in Jordan and Lebanon may prove to be lasting," it warned.
Lebanon's economy was forecast to expand by just 0.2% this year. That marked a vast downgrade from prior guidance of 3%.
Egypt's economy suffered due to slumping Suez Canal fees after shipping attacks by Yemen's Iran-backed Houthi rebels, who are protesting over Israel's relentless attacks on Gaza.
But this was partially offset by pledges of multi-billion-dollar funds from the International Monetary Fund (IMF) and other international partners.
