ArmInfo. Geopolitical tensions remain a significant downside risk for ECA, with risk and uncertainty remaining elevated and exceeding pre-invasion levels.
A prolonged extension or intensification of Russia's invasion could further weaken Ukraine's economy and sustain high geopolitical uncertainty. Potential setbacks in the Armenia-Azerbaijan peace process also add to downside risks. Conversely, an earlierthan-expected end of hostilities associated with Russia's invasion could accelerate reconstructiondriven investment in Ukraine and boost regional investor confidence. Progress in the ArmeniaAzerbaijan peace process could strengthen South Caucasus integration, reads the Global Economic Prospects report by the World Bank.
Policy and trade uncertainty in the region remains high, posing a downside risk. Tariffs have risen significantly since January 2025, and further increases may occur. Persistent trade policy uncertainty and additional restrictions could further dampen exports, investment, and confidence, particularly through euro area demand. Elevated geopolitical risks could reduce international trade-by about 30-40 percent. Central Europe and the Western Balkans are particularly exposed to a broad slowdown given their high trade openness and integration into European value chains. Stronger competition from China may also pressure manufacturing exporters such as Poland and Turkiye.
On the upside, deeper regional integration- bolstered by new agreements-could support trade and growth. Recent momentum includes the establishment of the EU- Central Asia Strategic Partnership, the signing of both the EU- Uzbekistan Enhanced Partnership and Cooperation Agreement, and the U.S.-Central Asia Economic Cooperation Statement of Intent. Deeper Central European Free Trade Agreement- EU ties could have boosted members' exports by 4-27 percent, with further gains possible from improved trade facilitation, payments integration, and lower nontariff barriers. Combined with export diversification, lower tariffs, and reduced trade uncertainty, these developments could ease inflationary pressures and boost confidence.
Inflation is expected to remain above target in most ECA economies in 2026. However, inflation could prove higher or more persistent than anticipated, owing to tighter labor market conditions, faster wage growth, higher import tariffs, and supply chain disruptions-particularly in Central Europe- which could push up domestic prices. This may require tighter monetary policy.
More restrictive global monetary and fiscal policies, renewed trade tensions, or a sharp repricing of risk amid global asset price corrections could trigger capital outflows, lead to exchange rate pressures, and raise corporate and sovereign borrowing costs. Economies with large external financing needs, particularly in the Western Balkans and parts of Central Europe, remain most exposed to sudden tightening in global financial conditions.
More frequent and severe extreme weather events-heatwaves, droughts, and floods- pose another downside risk to ECA growth, as they continue to threaten agricultural productivity, water resources, and infrastructure, particularly in Central Asia and parts of Central and Eastern Europe. Extreme heat could potentially reduce GDP by up to 2.5 percent by midcentury in parts of the region, with urban areas expected to face rising temperatures (World Bank 2025g). Without strengthened adaptation and more resilient infrastructure, these risks will increasingly weigh on growth, fiscal stability, and health.
Artificial intelligence (AI) could present an upside risk for ECA. Venture capital investment in AI firms has grown sharply, notably in Central Europe (refer to figure 2.2.3.D). Rising productivity gains from faster AI adoption could expand tradable services and entrepreneurship, particularly in digitally advanced economies, and could boost global GDP by up to 4 percent over the next decade (Cerutti et al. 2025). About 30 percent of ECA jobs are exposed to generative AI-especially in Central Europe and the Western Balkans- underscoring the importance of reskilling, on-thejob training, and innovation that complements human skills (W
In its November forecast, the World Bank voiced the same expectations for Armenia's GDP growth: 5.2% in 2025, with a slowdown in 2026 to 4.9% and in 2027 to 4.7%. At the same time, in Armenia's neighboring countries, according to the new WB forecast, GDP growth in 2026-2027 will be lower in Azerbaijan - 1.8-1.7% (against an estimated 1.9% in 2025), and higher in Georgia - 5.5-5% (against an estimated 7% in 2025). In Iran, according to the WB forecast, a deepening decline in GDP is expected in 2026 to 1.5% (from an estimated minus 1.1% in 2025) and then a weak 0.6% growth in 2027. In Turkey, the World Bank forecasts economic growth to accelerate to 3.7% in 2026 (from an estimated 3.5% in 2025), with growth then rising to 4.4% in 2027.
In the Europe and Central Asia region as a whole, the World Bank forecasts economic growth to remain at 2.4% in 2026, with a further moderate acceleration to 2.7% in 2027. The Bank expects global economic growth to reach 2.6% in 2026 and 2.7% in 2027. "The global economy is showing greater resilience than expected, despite persistent trade tensions and policy uncertainty. Growth is expected to remain broadly stable over the next two years," the report notes.
