Published on 03/06/2026 - 9:03 GMT+2•Updated 9:55

The European Bank for Reconstruction and Development, active in emerging markets from central and eastern Europe through Central Asia and into the Middle East and North Africa, has trimmed its expansion estimates for these areas because of mounting economic strain from the Middle East conflict.

Its newest Regional Economic Prospects report, called "Strai(gh)t talk", sets combined growth for the regions at 3.1 percent for 2026. That marks a decline from 3.4 percent in 2025 and sits 0.5 percentage points beneath the February projection.

Activity is anticipated to pick up to 3.6 percent in 2027, though this figure too has been adjusted slightly lower than prior expectations.

The report points to climbing oil and gas prices, interruptions to shipping lanes via the Strait of Hormuz, and growing gaps between European and US energy expenses as factors that have dented competitiveness and tempered momentum in numerous economies.

The EBRD calculates that growth across its regions fell to 2.9 percent year on year during the opening quarter of 2026. Several major economies, among them Egypt, Kazakhstan, Romania, Turkey and Ukraine, posted softer results than anticipated.

"The conflict in the Middle East has delivered a new shock to regions already navigating weakness in manufacturing industries and fragile fiscal positions," EBRD Chief Economist Beata Javorcik said alongside the release.

Inflation outlook deteriorates, and borrowing costs rise

The report notes a fresh upturn in inflation following easing late in 2025.

Average price growth across EBRD regions rose to 6.4 percent from February to April 2026, an increase of 1.2 percentage points.

The bank attributes the rise chiefly to elevated energy and food costs, with some currencies weakening against the US dollar adding extra strain.

Inflation is expected to stay higher for longer than previously thought, given that food and energy represent a bigger portion of household budgets in many of these economies compared with advanced economies.

Nearly two thirds of the economies tracked by the EBRD have rolled out support steps such as fuel price caps, tax cuts and targeted subsidies to help consumers or curb energy use.

Even so, the bank cautions that government budgets face growing pressure from higher energy bills, increased borrowing costs and tighter global financial conditions, especially where debt is already high.

Looking forward, the report warns that an extended conflict risks driving further energy price spikes, worsening supply chain issues and weighing more heavily on growth across the regions.