Tashkent, Uzbekistan (UzDaily.com) — According to the World Bank’s report on the economic state of countries in Europe and Central Asia, published today, growth rates in the developing economies of this region are expected to slow down in the coming years.

The forecast predicts that in 2025-2026, the average growth rate will be 2.5%. This slowdown is attributed to a reduction in external demand and a weakening of business activity in Russia.

In 2024, economic growth in the region stabilized at 3.6%, driven by increased private consumption, a steady rise in real wages, a growth in remittances, and the activation of consumer credit. These domestic factors partially offset the decline in external demand caused by sluggish economic dynamics in the EU countries.

However, the acceleration of food and service price increases has led to heightened inflationary pressure: by February 2025, the annual inflation rate is expected to reach 5%, compared to 3.6% in mid-2024. This trend has prompted central banks in several countries to raise key interest rates or abandon further easing of monetary policy.

According to the Vice President of the World Bank for the Europe and Central Asia region, Antonella Bassani, despite sustained growth in the past year, maintaining these growth rates will become more challenging for the region’s countries due to ongoing global uncertainty, geopolitical fragmentation, and weakening economies of key trading partners. To ensure higher sustainable growth in the long term, countries need to accelerate the implementation of structural reforms aimed at developing an innovative and competitive private sector, supporting entrepreneurship, and introducing advanced technologies.

Central Asia is expected to maintain its leading position in terms of growth rates among subregions, despite a forecasted slowdown to 4.7% in 2025-2026. This decline is attributed to the weakening of Kazakhstan’s oil sector, reduced export volumes, and the normalization of remittance flows.

In the South Caucasus countries, the average annual growth is expected to be 3.5% during the same period. The main causes are the fading effect of previously active intermediary trade and a reduction in the influx of labor and capital.

The forecast also indicates that uncertainty in trade policy, rising trade barriers, and the indirect impact of supply chain disruptions in Eurozone countries will limit the recovery of economies in other countries of the region.

Thus, in the Western Balkans, growth rates are expected to slow to 3.4%, while in Central Europe, a slight increase to 2.7% is anticipated.

In Russia, growth is expected to slow to 1.3% in 2025-2026, while Türkiye is expected to experience a modest acceleration to 3.3%. However, this figure will remain below long-term levels due to weak external demand and the ongoing restoration of macroeconomic balance. In Ukraine, growth is likely to slow to 2% in 2025.

The special analytical section of the report highlights the key role of the private sector as a driver of sustainable growth in the face of global instability. To accelerate economic development, countries in the region should invest more in innovation, support the emergence of young companies, deepen financial markets, and increase investment in research and development, while actively integrating advanced technologies, international experience, and capital.

The transition of countries from middle-income status to high-income status is possible only with dynamic economic development. Countries that have reached high-income levels have demonstrated entrepreneurial activity and an innovative approach. Maintaining the achieved level requires the effective use of modern technologies, management practices, and investment potential to increase labor productivity.

According to the Chief Economist of the World Bank for the region, Ivaylo Izvorski, innovation and entrepreneurial experiments are essential conditions for productivity growth and achieving the status of high-income countries.

To achieve this, it is necessary to create an environment in which businesses can grow, implement innovations, and compete effectively. While each country requires an individual strategy for growth recovery, stimulating innovation and developing entrepreneurial dynamism should be a priority for all.

The report also emphasizes that government investments should be directed not at the entire small and medium-sized enterprise sector but specifically at young innovative companies, as they are the main source of new jobs. For this, access to financing, especially long-term and venture capital, needs to be expanded, as such resources are currently lacking in the region’s market.

In addition, the need to strengthen competition is noted, as the region is dominated by small low-productivity enterprises, with large ones—except for state-owned companies—being underrepresented. State-owned companies often dominate the market, hindering the development of the private sector.

To enhance the innovative potential and productivity of businesses, government policies should stimulate the adoption of advanced technologies. In particular, more large-scale and targeted support measures for research and development should be implemented. Currently, many companies in the region are more focused on resource redistribution or operate as production branches of foreign firms, without creating their own technological solutions.

Finally, one of the most important tasks remains investment in human capital. Only in this way can qualified specialists and entrepreneurs be attracted and retained, while providing ample opportunities for skill enhancement and professional growth through education.