WB on major risks for ECA 

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.