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bne March 2025 Companies & Markets I 9
Meanwhile, the aspiring EU members in the Western Balkans are set to grow by an average of 3.5% annually over the next two years. In the region, Albania, Kosovo and Serbia are set to achieve the fastest growth over the three year horizon, coming in at an average of 4.0% in Kosovo, 3.9% in Albania and 3.7% in Serbia.
Turkey is projected to expand by 3.5% in 2025 and 4.5% in 2026, while Kazakhstan is also among the fastest-growing countries in the broader region, with GDP expected to rise by 4.9% in 2025, easing to 4.5% in each of the following two years.
Assessing the risks from Trump’s second US presidency, Grieveson points to a tariff hike as the main potential impact on the EU, including its eastern members. “While direct trade flows between the region and America are limited, lower
US demand for European industrial products and reduced investment could have a severe impact on Central and Eastern Europe,” the report said.
“Since the US has become by far the most important export market for the EU over the past decade, the negative impact of high US tariffs on European goods and services would also be significant for the Eastern European members and would be felt by them relatively soon," commented Grieveson.
Gloomier outlook for Ukraine
The outlook for war-torn Ukraine remains fragile, with wiiw trimming its 2025 growth forecast to 3.0%, down 0.3 percentage points (pp) from its previous projection.
Inflationary pressures have prompted Ukraine’s central bank to tighten monetary policy, raising interest rates to 14.5% –
a move that could further dampen economic expansion.
The economy has demonstrated remarkable resilience despite Russia’s ongoing invasion. However, systematic Russian airstrikes on Ukraine’s energy infrastructure and an intensifying labour shortage are constraining growth. Additionally, last summer’s drought has disrupted agricultural exports, leading to higher food prices. Despite these challenges, wiiw anticipates that growth will accelerate to 5.0% in 2026.
This will, however, also hinge on US policy towards Ukraine. “[I]f Donald Trump forces Ukraine into a dictated peace without credible security guarantees and significantly reduces financial and military support, this will cloud the economic outlook and deter investors,” said Olga Pindyuk, a Ukraine expert at wiiw.
There could also be a severe impact far beyond Ukraine’s borders. “If Ukraine were to receive no more help from Washington and be defeated militarily, that would severely damage the image of the West, demoralise and discredit Nato and encourage Putin to test the alliance’s mutual defence clause,” said Grieveson.
“A large wave of refugees from Ukraine to the entire EU would probably be the result, and there would also be the possibility of a sharp rise in global food prices, which could lead to social and political unrest,” according to the economist.
Russia’s economic growth falters
On the other side of the Russia-Ukraine war, wiiw forecasts that Russia’s economic growth is expected to slow significantly after two years of war-driven expansion.
Following growth rates of 3.6% in 2023 and 3.8% in 2024, the country’s GDP is forecast to increase by just 1.8% in
2025 and 1.6% in 2026. A key driver of this slowdown is the Russian central bank’s aggressive monetary tightening, wiiw said. With inflation soaring to 9.5% at the end of 2024, the bank has raised interest rates to 21%, making borrowing prohibitively expensive for businesses and consumers.
“The high interest rates make loans unaffordable for most businesses and consumers and create a strong incentive to hoard money in bank accounts, thus stifling the economy,” said Vasily Astrov, a Russia expert at wiiw.
“Since the US has become by far the most important export market for the EU over the past decade, the negative impact of high US tariffs on European goods and services would also be significant for the Eastern European members and would be felt by them relatively soon,”
Further compounding Russia’s economic woes are falling energy revenues, exacerbated by new US sanctions targeting major Russian oil companies and a fleet of tankers that export crude to China and India. While wiiw expects Russia to find ways to circumvent these sanctions, the overall economic impact remains negative.
However, the most significant challenge for Russia’s economy could come when the war in Ukraine eventually ends. Government spending on the military and armaments currently accounts for more than 6% of GDP, an unsustainable level in the long term.
“The Russian economy is now hooked on high government spending for the war – like on a drug. If it is reduced or cancelled one day, it faces a veritable demand shock that could plunge it into a deep crisis,” Astrov said.
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