Europe and Central Asia’s Growth Slows to 2.2% as AI Reshapes Jobs and Skills Needs

Central Asia remains the fastest-growing subregion, with expansion estimated at 5.8% in 2026, including projected growth of 9.6% in the Kyrgyz Republic and 7.9% in Uzbekistan.

Growth in Europe and Central Asia is expected to slow to 2.2% in 2026 from 2.6% in 2025, as higher energy prices, uncertainty and weaker expansion in trading partners weigh on economic activity. The World Bank's latest Europe and Central Asia Economic Update: Making AI Work: Jobs, Firms, and Productivity describes a broad slowdown affecting most countries. Excluding Russia, which accounts for about 40% of regional output, growth is projected to ease from 3.7% to 3%, with global commodity-market disruptions having a smaller impact than initially expected.

Domestic demand supports economies facing slower growth

Favourable labour-market conditions, rising real wages, remittances, tourist arrivals and public investment have helped sustain growth, giving households and businesses support against external pressures. Temporary government relief measures have partly cushioned higher energy costs, adding to pressure on public finances in some countries. Antonella Bassani, the World Bank's Vice President for Europe and Central Asia, attributed the region's resilience to lower energy intensity, stronger government responses and robust domestic demand, stressing the importance of productivity gains as working-age populations shrink.

Central Asia remains the fastest-growing subregion, with expansion estimated at 5.8% in 2026, including projected growth of 9.6% in the Kyrgyz Republic and 7.9% in Uzbekistan. The Western Balkans is expected to strengthen from 2.6% growth in 2025 to 3.1% in 2026, and Poland stands out in Central Europe with growth holding at 3.6%. Ukraine faces a weaker outlook, with growth expected to slow to 1.2% as intensified damage to critical infrastructure and export disruptions restrict activity.

Energy costs and weaker trade keep the outlook fragile

Higher energy prices are keeping inflation elevated, and sluggish European Union growth and stronger competition from other countries are weighing on exports and industrial production, particularly in automotive supply chains. Further trade disruption, continued hostilities in Ukraine and additional increases in energy, transport and fertilizer costs could deepen those pressures. Tighter global financing, weaker growth in major trading partners and extreme weather events remain important downside risks, leaving countries exposed to developments that could restrict investment, production and household purchasing power.

AI's potential depends on skills, data and private investment

The report finds that AI is arriving faster than the region can absorb it, with about one in five workers holding jobs meaningfully exposed to the technology, predominantly among young and well-educated people. Fewer than one in ten firms currently use AI, mostly for basic tasks. Nearly universal mobile coverage, favourable energy costs and strong technical talent provide important foundations, with shortages in basic educational and managerial skills, connected data systems that can work together, and computing capacity restricting wider adoption.

Bassani highlighted AI's potential to raise productivity and help offset a shrinking workforce, calling for stronger educational and managerial skills and labour-market and social protection institutions prepared for disruption. Ivailo Izvorski, the World Bank's Chief Economist for Europe and Central Asia, placed the private sector at the centre of adoption, adaptation and innovation. He identified insufficient adoption and adaptation over the next decade as the main risk, linking workforce preparation with the opportunity to address employment challenges and generate growth.

AI could make existing industries more efficient and support new products, services, occupations and entire sectors, with better skills and substantially larger inflows of private capital essential to turning those possibilities into economic activity. Governments could help attract investment by expanding affordable access to computing, creating the conditions for more businesses to develop and use AI applications. The report identifies potential opportunities to export computing capacity where demand exists, connecting investment in digital infrastructure with new sources of economic growth.