Growth in Europe and Central Asia to Slow to 2.6% in 2025, World Bank Says

Economic growth in Europe and Central Asia (ECA) is forecast to decelerate to 2.6% in 2025, reflecting a sharp slowdown in Russia, according to the World Bank’s latest Europe and Central Asia Economic Update report. Excluding Russia, the region’s growth is expected to hold steady at 3.2%, before recovering to 3.7% in 2026.

The outlook is bolstered by falling inflation, rising incomes, and a gradual recovery in key trading partners. However, geopolitical risks, sluggish EU growth, and a slower-than-expected return to inflation targets present significant headwinds for the region’s fragile recovery.

Diverging Growth Trajectories

The World Bank notes a bifurcation in growth prospects. While Russia’s economic difficulties weigh heavily on the regional average, other ECA economies are benefiting from robust private consumption, fiscal support, and firming demand in global markets.

Despite this, income convergence with high-income economies—a long-standing ambition for many middle-income nations in the region—has slowed. Structural barriers, particularly the misallocation of talent and educational shortcomings, are impeding innovation and productivity.

A Crisis in Education

The report places a sharp focus on the region’s human capital challenges. While ECA countries pride themselves on broad access to education—with an average of 12.6 years of schooling and tertiary graduation rates exceeding the global average—quality issues have eroded the gains of recent decades.

Basic education is underperforming, with test scores in the Program for International Student Assessment (PISA) deteriorating sharply over the past decade, particularly post-pandemic. Instructional hours remain below OECD standards, and students from disadvantaged backgrounds are disproportionately affected.

Higher education fares no better. Only nine institutions in ECA feature in the top 500 of the Times Higher Education rankings, reflecting chronic underfunding, outdated curricula, and governance issues. Large public universities face shrinking student pools, while employers report that graduates lack critical technical and soft skills needed in today’s labor market.

Unlocking Growth Potential

The World Bank calls for sweeping reforms to address these deficiencies. Policies to align educational systems with labor market demands, coupled with investments in modern infrastructure and governance improvements, could unlock the region’s untapped potential.

Without such measures, the report warns, ECA economies risk falling further behind global peers, with talent shortages and mismatched skills acting as enduring drags on growth.

Source: norvanreports.com