By Libby George
LONDON (Reuters) -Tariffs, wars and economic worries in powerhouse economies such as Germany and China led the European Bank for Reconstruction and Development (EBRD) to cut its economic growth forecasts for the fourth straight time, the lender said on Tuesday.
In the report, which covers economies in emerging Europe, central Asia, the Middle East and Africa, the EBRD lowered its previous forecast for 2025 made in February by 0.2 percentage points to 3%, with downward revisions across most economies.
“Almost no country remains untouched by what’s happening in the world,” EBRD Chief Economist Beata Javorcik said. “The biggest effect on our countries is indirect via changes in prospects for Germany and China.”
Slovakia and Hungary will suffer the largest direct hit from U.S. tariff increases, with 2025 growth forecasts revised down by 0.5 percentage points, to 1.4% and 1.5%, respectively. Both countries are heavily geared towards automotive industries.
The report was compiled before the latest news on the U.S. and China reaching a deal to temporarily slash tariffs.
“Firms are halting investments and waiting to see what will happen,” EBRD Chief Economist Beata Javorcik said.
“We have this very big shift of mindset from resilience of global value chains in terms of security of supply … now, security of market access is the key concern.”
Projects underway are already being slowed down and delayed, even as the U.S. paused blanket new “reciprocal” tariffs and said it was ready to negotiate on other levies it imposed as part of U.S. President Donald Trump’s aim to convince firms to bring manufacturing back to the United States.
But the economic hits to Germany, China and other large European countries are looming; Germany is the largest trading partner for 10 EBRD economies, with exports to it accounting for nearly a quarter of GDP in the Czech Republic, and close to 20% in Slovakia and Hungary.
While Europe’s push to boost defence spending could be a boon for certain countries including Poland, Turkey and the Czech Republic, “there is a very real concern that the increase in defense spending will crowd out other expenditure.”
And while the IMF expects average debt in EBRD regions to remain broadly stable at 52% of GDP from 2025-2029, Javorcik said that was “too optimistic given what we are seeing on the ground.”
The IMF, Javorcik said, is assuming revenues will be high and that new spending will be matched by cuts elsewhere.
“We think that actually some budget deficits will be higher,” she said.
(Reporting By Libby George, editing by Karin Strohecker and Toby Chopra)
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