Middle East Conflict Hits Regional Economies

Economic growth across Europe and Central Asia is likely to slow down significantly this year due to the consequences of the conflict in the Middle East, according to a new regional outlook published by the World Bank.

The report shows that overall economic growth in the region will decline to 2.1 % in 2026.

This slowdown is largely driven by surging energy prices, which are weighing on household consumption, as well as heightened uncertainty that continues to dampen investment activity.

Growth in Central Asia is expected to slow to an average of 4.9 percent in 2026-2027 as oil production in Kazakhstan stabilizes.

Meanwhile, Central Europe is expected to grow by around 2.4% in 2026, before slowing slightly to 2.3% in 2027.

The Western Balkans present a relatively more resilient outlook, with growth projected to average 3.1% in the coming years, supported by infrastructure investment and strong services exports.

The ongoing tensions in the Middle East remain a major source of global economic risk. Disruptions to supplies of energy and fertilizers could drive up prices for both energy and food, further slowing economic activity across the region.

The report also highlights a persistent slowdown in productivity growth across many countries in Europe and Central Asia over the past decade.

However, experts warn that current policies are often misaligned. Nearly two-thirds of industrial policy measures are concentrated in agriculture and food production, while only about 10% target high-tech industries or capital goods development.

According to the World Bank, industrial policy should prioritize the development of innovative and fast-growing private-sector firms rather than protecting established players such as state-owned enterprises.

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