The EBRD has cut its 2026 growth forecast for its regions to 2.5% from 3.1% as Iraq's oil export collapse, European drought and a renewed Black Sea blockade hit output.

The European Bank for Reconstruction and Development expects growth to rebound to 4.0% in 2027, up 0.4 percentage points (pp) from its previous forecast, according to its latest Regional Economic Prospects report, titled "Running dry", which is embargoed until 06:00 London time on September 24.

The 0.6pp downgrade for this year is the second cut in a row, after the bank trimmed its 2026 forecast to 3.1% in June as the conflict in the Middle East triggered an energy shock. Most of the latest revision comes from Iraq, where the EBRD now expects GDP to shrink by 12% in 2026 before a projected rebound of 14% in 2027, assuming oil shipments normalise. Excluding Iraq, the 2026 forecast was trimmed by only 0.1pp to 3.3%, but the bank warns that constraints on oil exports, water and global savings are exposing weak spots in energy systems, food supply chains and public finances across its regions.

"The shocks facing economies across the EBRD regions show no sign of abating," said Beata Javorcik, the EBRD's chief economist. "Water scarcity, extreme weather and higher financing costs are compounding the effects of high energy costs, putting further pressure on growth. This underlines the urgency of investing in resilience and strengthening our economies to better withstand the shocks that may lie ahead."

Growth across the EBRD regions accelerated from 3.1% in 2024 to 3.4% in 2025 but slowed to an estimated 2.4% y/y in 1H26.

Energy and food

Brent crude rose from about $65 per barrel before the Middle East conflict to more than $100 by April as seaborne crude exports from the region halved, and prices remain 30-60% above pre-conflict levels. Diesel and jet fuel prices have risen faster than crude. Bosnia and Herzegovina, North Macedonia and Moldova have taken the biggest hit to their import bills, owing to their heavy reliance on imported energy and indirect exposure to the Middle East through oil product supply chains.

Dutch TTF gas prices, adjusted for US inflation, are up more than 70% since February, while global seaborne LNG exports have fallen by 40% as Middle Eastern cargoes have largely stopped. EU gas storage was only 65% full on average in August, the lowest level for that month in 15 years, and at the historical average injection rate would fall 16pp short of the 90% pre-winter target at its early November peak. "The need to refill the storage suggests that high gas prices are likely to persist for some time," the report says. The averages mask big differences: Poland and Hungary have storage levels similar to last year's, while Ukraine held more gas in storage in mid-2026 than at any point since 2022.

Russia's escalating attacks on Ukraine's Black Sea ports and on vessels using them have severely disrupted grain shipments from both Ukraine and Russia, which together account for about a quarter of global wheat exports. Daily transits through the Bosporus fell from 60 in early June to 40 in the week to August 16, and cargo traffic out of the Black Sea dropped below the lows of 2022. Wheat prices have risen by more than a third since February and are expected to stay high through 2028, while higher fertiliser prices will feed more fully into farm costs in 2027.

Low water levels on the Danube have also limited Ukraine's main alternative export route. Drought hit central Europe and the Baltic states hardest: 38% of land was at medium or high agricultural drought risk in 2026, against an average of 12% since 2010, with more than 40% of land affected in Poland, Slovakia and Hungary. Record-low water levels on the Danube and the Rhine held back shipments of industrial goods and cut output from hydropower and nuclear plants in the Danube basin by about a third, pushing up electricity prices across interconnected markets.

Inflation and financing

Average inflation in the EBRD regions has stabilised at about 6% after peaking at 6.7% in April. Energy accounts for about a quarter of headline inflation, which remains around 2pp above its pre-Covid average and is increasingly feeding into inflation expectations.

Financing conditions have tightened as falling saving rates in advanced economies, higher inflation, government deficits and heavy corporate borrowing to fund artificial intelligence (AI) investment push long-term interest rates higher. Bond yields across most EBRD economies have risen in step with those in advanced economies, although sovereign spreads over Germany have generally returned to or below pre-conflict levels. Turkey is an exception, with spreads 0.6pp wider than at the start of the year owing to its reliance on imported energy and slower-than-expected disinflation. Fiscal space is tightest in Egypt, where interest payments are projected to absorb 88% of government revenue in 2026, according to IMF projections cited in the report, and in Kenya, Nigeria, Ghana, Senegal and Jordan, where they take more than a fifth.

Firms in the EU pay about 2.4 times the US price for electricity, driving a shift away from energy-intensive production. On trade, US tariff changes in July cut the average statutory tariff on imports from the EBRD regions from 11.6% to 8.6%, with reductions for 34 of the 40 economies, although frequent changes to tariff regimes keep uncertainty high.

Country forecasts

Growth in central Europe and the Baltic states is forecast at 2.9% in 2026 and 2.5% in 2027, as the peak in absorption of EU Recovery and Resilience Facility funds ahead of the August 2026 deadline gives way to slower growth once the money ends. Poland's forecast is unchanged at 3.5% for 2026 and 2.8% for 2027, while Hungary is expected to grow by 1.8% and 2.5%. Slovenia's 2026 forecast was raised by 1.6pp to 3.6% on post-flood reconstruction investment.

The south-eastern EU is expected to grow by just 0.5% in 2026 and 2.0% in 2027. Romania's economy is forecast to contract by 0.2% this year as fiscal consolidation and high inflation hit household spending and manufacturing, before growing 1.8% in 2027. Bulgaria is expected to grow by 2.7% in 2026.

Turkey's 2026 forecast was cut by 0.5pp to 3.0% as persistent inflationary pressure required tighter financing conditions, with growth expected to pick up to 4.0% in 2027. Growth slowed to 2.5% y/y in 1H26 as exports fell in real terms.

In eastern Europe and the Caucasus, growth is forecast at 2.5% in 2026 and 3.1% in 2027. Ukraine took one of the steepest cuts, with its 2026 forecast lowered by 0.7pp to 1.5% and its 2027 forecast by 1.5pp to 2.5%, after its economy stalled at 0.0% y/y in 1H26 under intensifying Russian strikes on energy, production and logistics infrastructure. Georgia's forecast was raised by 0.5pp to 6.5% for 2026, Armenia is expected to grow by 5.5% and Azerbaijan by 2.0%, while Moldova is forecast at 2.8%.

Central Asia remains the fastest-growing region, at 5.8% in 2026 and 5.3% in 2027. Uzbekistan's 2026 forecast was raised by 1.0pp to 7.5% on strong domestic demand and Mongolia's by 0.8pp to 6.3% on record mining output. Kazakhstan is expected to grow by 4.7%, the Kyrgyz Republic by 8.7% and Tajikistan by 7.9%. Disruption to fuel supplies from Russia remains a downside risk.

Growth in the Western Balkans is forecast at 3.0% in 2026 and 3.5% in 2027, with Serbia at 3.1% and 3.8%, on improving external demand, investment and tourism.

The southern and eastern Mediterranean is expected to contract by 0.7% in 2026 before rebounding by 7.1% in 2027, driven by Iraq, where oil exports through alternative routes fell to less than a quarter of last year's capacity after the closure of the Strait of Hormuz. Excluding Iraq, the region is forecast to grow by 3.9% and 4.3%. Egypt's 2026 forecast was trimmed by 0.3pp to 4.6%, Lebanon is expected to contract by 5.0% after renewed military escalation, and Morocco's forecast was raised to 4.8% on a strong harvest.

Sub-Saharan Africa is forecast to grow by 4.8% in 2026 and 4.7% in 2027 as commodity windfalls fade. The 2026 upgrade comes mainly from Nigeria, forecast at 4.2%, where agriculture and services have accelerated and rising output at the Dangote refinery has cut fuel imports.

The EBRD also forecasts Russia's economy to grow by just 0.5% in 2026 and 0.7% in 2027, 0.3pp lower in both years, and Belarus by 1.3% and 1.5%, after downgrades of 2.1pp. Both countries' access to EBRD resources has been suspended since 2022.