Resilient Yet Vulnerable: 2025 Economic Trends in Developing Europe and Central Asia

The World Bank’s Macro Poverty Outlook highlights cautious economic recovery across Europe and Central Asia, with moderating inflation and declining poverty in many countries. However, risks from geopolitical tensions, trade disruptions, and structural weaknesses continue to challenge sustained growth.

The Macro Poverty Outlook for Europe and Central Asia, released by the World Bank’s Poverty and Economic Management Global Practice and the Macroeconomics, Trade & Investment Global Practice, paints a detailed picture of 23 countries navigating uneven recoveries, structural reforms, and lingering geopolitical uncertainty. The report underscores a cautiously optimistic medium-term outlook, grounded in slowing inflation, steady consumption, and public investment, yet shadowed by risks ranging from political unrest and trade fragmentation to declining productivity and persistent poverty. As growth returns to pre-pandemic levels in some nations, macroeconomic stability and poverty reduction remain delicately balanced.

Growth with Caution: The Economic Pulse

Albania sustained solid growth of 3.9 percent in 2024, driven by robust tourism, private consumption, and construction. Inflation cooled to 2.2 percent, while poverty declined marginally thanks to job and wage expansion. Yet risks from global trade shifts and aging demographics cloud the medium-term outlook. Armenia, recovering from post-conflict economic inflows, saw growth ease to 5.9 percent in 2024. While inflation dropped to a mere 0.3 percent due to food price deflation, rural unemployment rose, and poverty peaked slightly. Fiscal pressures are mounting, especially as defense and infrastructure spending ramp up.

In Azerbaijan, GDP growth rose to 4.1 percent, bolstered by a strong non-oil economy and public investment. However, lower hydrocarbon prices reduced fiscal and trade surpluses. Inflation stayed at 2.1 percent, and unemployment declined, but the need for structural diversification remains urgent. Belarus posted 4 percent growth, fueled by domestic demand and strong exports to Russia. But inflation remains elevated at 5.7 percent, and continued sanctions have raised questions about the sustainability of this trajectory. Moldova, grappling with energy shocks and spillovers from the war in Ukraine, posted just 0.1 percent growth, underscoring its economic fragility.

Steady Strides and Structural Headwinds

Bosnia and Herzegovina saw modest growth of 2.6 percent in 2024, led by rising household consumption and government spending. However, trade imbalances widened the current account deficit, and investment remains constrained by political complexity and limited structural reform. Bulgaria surprised with a stronger-than-expected 2.8 percent growth rate, spurred by rising wages, credit-fueled consumption, and government expenditure. With inflation falling to 2.4 percent and Maastricht criteria met, Bulgaria is poised for eurozone entry in 2026. Yet, high public debt and slow poverty reduction temper the optimism.

Croatia maintained above-EU-average growth at 3.8 percent, primarily driven by domestic demand and EU-backed public investment. While services inflation remains high, fiscal consolidation is underway, and public debt has dropped below 60 percent of GDP. Poverty declined modestly, though income inequality persists. Kosovo reported strong 4.4 percent growth, underpinned by higher wages and remittances. Fiscal prudence ensured a nearly balanced budget, and poverty fell three percentage points. Nonetheless, issues such as low female labor participation, governance constraints, and demographic pressure remain substantial hurdles.

High Performers and Their Risks

Georgia was a regional standout in 2024, posting 9.4 percent growth on the back of rising real wages and credit expansion. Poverty declined sharply to 35.6 percent, while unemployment dropped below 14 percent. But civil unrest following the postponement of EU accession talks and declining Russian remittances threaten to stall progress. In Kazakhstan, 4.8 percent growth reflected solid domestic consumption and investment despite a fall in oil output. Inflation surged to 9.4 percent in early 2025, fueled by utility hikes and VAT increases. Public debt and household borrowing have both risen, posing future risks, though poverty declined to 7 percent.

The Kyrgyz Republic also clocked in an impressive 9 percent GDP expansion in 2024, supported by re-exports and rising remittances. Poverty dropped significantly to 4.4 percent. While inflation fell temporarily, it rebounded by early 2025. Urban poverty is rising, and concerns around underreported trade statistics and employment insecurity persist. A slowdown in China or stronger sanctions on Russia could upend this progress.

Outlook and Challenges Ahead

The regional outlook for 2025 and beyond is cautiously upbeat but hinges on several volatile factors. Inflation is stabilizing, and consumption remains resilient, yet global trade uncertainty, demographic shifts, and fiscal pressures are growing concerns. Several governments are projecting wider deficits due to increased capital spending, defense outlays, or social transfers. Despite progress, poverty rates remain high in many countries, especially among rural communities, displaced populations, and the elderly.

The World Bank emphasizes that inclusive growth will require renewed attention to structural reforms, particularly in state-owned enterprise management, digitalization, tax efficiency, and climate adaptation. EU accession remains a key driver of convergence and reform momentum in countries like Georgia, Albania, and Moldova. Meanwhile, fiscal and monetary authorities across the region must navigate between supporting growth and preserving debt sustainability. If geopolitical tensions deepen or global financial conditions tighten, the fragile gains of 2024 could quickly unravel.

The 2025 Macro Poverty Outlook portrays a region balancing promise with peril. Where prudent governance aligns with reform, resilience is possible. But where politics or external shocks intervene, the risk of regression remains real. The coming years will be critical in defining whether Europe and Central Asia’s developing economies can transform post-crisis recovery into sustained, inclusive prosperity.