The World Bank has announced that emerging and developed economies in Europe and Central Asia are expected to experience a noticeable slowdown this year, primarily due to a substantial rise in energy prices caused by the ongoing conflict in the Middle East. The report indicates that this situation may lead to increasing economic pressures on energy-importing countries, adversely affecting economic growth.
The conflict in Iran, which erupted in late February, has disrupted global oil supplies and driven prices higher, increasing costs for businesses and impacting consumers at fuel stations. A two-week ceasefire between Tehran and Washington has been announced, which may alleviate some tensions, but economic risks remain prevalent.
Details of the Situation
According to the World Bank's updated forecasts, growth in the region is expected to decline to 2.1% in 2026, down from 2.6% in 2025. Excluding Russia, growth could reach 2.9%, reflecting the impact of Western sanctions on Moscow due to its invasion of Ukraine in 2022.
Reports predict that Brent crude oil prices will range between $88 and $100 per barrel this year, which will also affect gas and fertilizer prices. While energy-exporting countries may temporarily benefit from higher prices, most countries in the region rely on energy imports, which will increase financial pressures on them.
Background & Context
The Europe and Central Asia region is home to numerous countries, including Kazakhstan and Uzbekistan in Central Asia, EU members like Poland and Romania, as well as Balkan nations such as Albania and Serbia, along with Russia, Turkey, and Ukraine. These countries are facing increasing economic challenges due to geopolitical changes and ongoing conflicts.
Although some countries like Russia may benefit from rising oil prices, economic growth in Russia is expected to slow to 0.8% this year, down from 1.0% in 2025. This reflects the ongoing pressures resulting from Western sanctions.
Impact & Consequences
Reports anticipate that these conditions will increase pressures on governments to reduce fiscal deficits, as any increase in revenues from oil and gas is likely to be used to decrease deficits rather than increase spending. Additionally, growth in Ukraine, which is suffering from the effects of the ongoing war, is expected to slow to 1.2% compared to 1.8% in 2025.
Furthermore, growth forecasts for Turkey have been downgraded, with the economy expected to grow by 2.8% this year, down from 3.7% in previous forecasts. Growth in Poland is also expected to decline to 3.1%, reflecting the impact of rising energy and food costs on consumption.
Regional Significance
Arab countries are directly affected by these developments, as many nations rely on energy imports. Rising energy prices may lead to increased living costs, impacting economic and social stability in the region. Additionally, conflicts in the Middle East could exacerbate humanitarian and economic crises in neighboring countries.
In conclusion, the current situation requires a swift response from governments in the region to address the increasing economic challenges, including enhancing regional cooperation and developing effective strategies to cope with rising prices and financial pressures.