WB: in 2025, weakening demand and investment increases uncertainties

Albania closed 2024 with an economic growth of 3.9%, maintaining a stable pace for the second consecutive year, according to the World Bank's Spring 2025 Economic Report.

Growth has been supported by private consumption, remittances, and the expansion of lending to households.

However, the outlook for 2025 is bleaker. Economic growth in Albania is expected to slow to 3.2%, and to 3.1% in 2026, due to slowing external demand, weakening foreign investment, and global uncertainties related to geopolitical tensions and trade policies.

At the regional level, the Western Balkans has maintained an average growth of 3.5% in 2024, with Kosovo and Serbia recording among the highest increases.

For 2025, the report predicts an overall slowdown in the region, with average growth expected to fall to 3.2%.

Kosovo remains among the countries with the most optimistic projection at 3.8%, followed by Serbia at 3.5% and Albania at 3.2%. Meanwhile, Montenegro and Bosnia are expected to remain at moderate levels, at 3.0% and 2.7%, respectively.

The forecasts reflect the impact of weak external demand, geopolitical tensions, and a more difficult financial environment for investment across the region.

The region remains influenced by the performance of the European economy and exposure to foreign markets, while consumption and remittances continue to be the main growth engines.

World Bank experts recommend deepening reforms to improve the business climate, foster innovation, and reduce dependence on state-owned enterprises to support more sustainable, private-sector-led growth.

Slower growth threatens Eastern Europe as urgency for reform grows

Slower growth is weighing on Eastern Europe and Central Asia, as inflation, weak external demand and structural inertia take hold. The World Bank is calling for bold reforms to unleash productivity and avoid the middle-income trap.

Robust consumption helped keep the emerging economies of Europe and Central Asia afloat last year, but a toxic mix of weak external demand, persistent inflation and structural weaknesses is now threatening to plunge the region into a low-growth trap.

According to the World Bank's Spring 2025 Economic Report, released on Wednesday, regional growth is expected to slow to an average of just 2.5% for 2025 and 2026.

If Russia is excluded from these data, the forecast improves somewhat to 3.3%, but remains significantly below the 4% average for the 2010–2019 period.

Which countries are slowing down and why?
World Bank data shows that Central Asia, ECA's fastest-growing subregion, is not immune.

Its growth is expected to slow from strong levels in 2024 to 4.7% for 2025–2026, impacted by lower expansion of Kazakhstan's oil sector, declining exports, and slowing remittance flows.

Russia faces a sharp downturn, with growth projected at just 1.3% — nearly three times slower than in 2024. Stronger sanctions, rising borrowing costs, and lower energy prices are adding to structural constraints, risking its economy drifting off its pre-pandemic path.

Turkey, which is undergoing a delicate economic rebalancing, is expected to expand by 3.3%, a notable improvement compared to recent years, but still below its long-term average.

Poland has a more optimistic outlook, with growth of 3.1%, supported by investments supported by European Union funds, however it still remains below its pre-2020 average due to eurozone weakness and ongoing trade policy risks.

In the Western Balkans and the South Caucasus, growth is expected to moderate to 3.4% and 3.5%, respectively, while Ukraine's recovery is likely to slow significantly, with growth projected at 2% due to ongoing war-related challenges.

Without urgent reforms, the risk is stagnation. The World Bank warns that countries that fail to modernize their economic frameworks, broaden their tax base, and invest in human capital may struggle to sustain even modest growth.

For many countries, fiscal space is shrinking, limiting opportunities for stimulus, while public spending needs are increasing.

To avoid stagnation and move closer to high-income status, the region must advance business innovation, create competitive markets, and implement productivity-enhancing reforms. Without these, the promise of convergence with more advanced economies risks slipping further out of reach./ Monitor