Central Asia to remain fastest-growing subregion with 4.7% growth in 2025-2026, says World Bank — Daryo News

Central Asia to remain fastest-growing subregion with 4.7% growth in 2025-2026, says World Bank

Economic growth in Europe and Central Asia’s developing economies is projected to slow to 2.5% in 2025–2026, according to the World Bank’s latest Economic Update released on April 23. The report attributes the deceleration to weaker global demand and a slowdown in Russia, the region’s key trading partner.

Source: Daryo

In 2024, the region posted a steady growth rate of 3.6%, supported by strong private consumption, rising real wages, higher remittances, and increased consumer borrowing. These factors helped offset weak external demand, particularly due to sluggish economic performance in the European Union.

However, inflation has returned as a growing concern. By February 2025, the annual inflation rate had climbed to 5%, up from 3.6% in mid-2024. In response, central banks across the region have raised interest rates or paused planned monetary easing.

“While countries of the Europe and Central Asia region were able to maintain steady growth last year, global uncertainty, geoeconomic fragmentation, and weak expansion among key trading partners are making it more challenging to sustain this growth,” said Antonella Bassani, World Bank Vice President for Europe and Central Asia. “To achieve stronger economic expansion over the long term, it is crucial for the countries in the region to accelerate domestic structural reforms that foster a dynamic and innovative private sector, entrepreneurship, and technology adoption.”

Central Asia Leads, But Challenges Remain

Despite the regional slowdown, Central Asia is expected to remain the fastest-growing subregion, with growth projected at 4.7% in 2025–2026. This represents a moderation, attributed to slower oil sector growth in Kazakhstan, declining exports, and normalized remittance flows.

The World Bank projects GDP growth in 2025 to reach 4.8% in Kazakhstan, 5.9% in Uzbekistan, 6.5% in Tajikistan, and 6.8% in the Kyrgyz Republic—among the highest growth rates in the Europe and Central Asia (ECA) region.

Source: Daryo

In contrast, growth in the South Caucasus is expected to average 3.5%, with reduced benefits from past surges in trade, labor, and capital inflows. Growth in the Western Balkans is expected to moderate to 3.4%, while Central Europe may see a slight uptick to 2.7%.

Russia’s economy is projected to slow significantly, with growth falling to 1.3% during 2025–2026. In Türkiye, modest growth of 3.3% is anticipated, as the country continues its economic rebalancing amid weak external demand. Ukraine’s economy is expected to expand by only 2% in 2025.

Call for Structural Reforms and Private Sector Dynamism

The World Bank’s special analysis stresses the urgent need for countries in the region to foster a dynamic private sector. Innovation, entrepreneurship, and adoption of new technologies are seen as essential tools for enhancing productivity and achieving long-term growth.

“Middle-income countries in the region can reach high-income status if firms grow, innovate, and compete,” said Ivailo Izvorski, Chief Economist for Europe and Central Asia. “Innovation and experimentation in business are essential for boosting productivity and a prerequisite for achieving and sustaining high-income status.”

Rather than broadly targeting small and medium-sized enterprises (SMEs), the report urges policymakers to focus on supporting young, innovative firms with access to long-term finance and risk capital. Venture capital and equity financing remain underdeveloped in many countries in the region.

Reform Priorities: Finance, Competition, and Human Capital

To unlock the region’s growth potential, the World Bank recommended several policy actions:

• Boost Access to Finance: Expand availability of long-term financing, particularly venture capital and equity investments to help high-growth firms scale.
• Strengthen Competition: Reduce market dominance by state-owned enterprises and encourage the entry of more dynamic private firms.
• Support R&D and Technology Adoption: Provide larger and better-targeted incentives for research, development, and innovation.
• Invest in Human Capital: Improve education and training systems to attract and retain skilled workers and entrepreneurs.

Many firms in the region remain reliant on foreign production contracts and resource reallocation, limiting innovation. For sustained growth, countries need to shift from low-productivity business models toward innovation-driven development.

Source: Daryo

Central Asia’s 1Q25 GDP and Forecasts

In the first quarter of 2025, Central Asian economies showed strong GDP growth, with Kyrgyzstan leading the region at 13.1%. Uzbekistan’s economy grew by 6.8%, driven by industrial output, construction, and services. 

Kazakhstan’s GDP rose by 5.8%, with significant contributions from transport, construction, and trade sectors. Turkmenistan posted a 6.3% growth, fueled by increases in manufacturing, trade, and services. 

Earlier, the Asian Development Bank (ADB) projected that Uzbekistan’s economy will grow by 6.6% in 2025, with stronger growth expected in 2026. Inflation is anticipated to slow to 8.0% in 2025 and 7.0% in 2026, despite expected hikes in energy prices. The European Bank for Reconstruction and Development (EBRD) also projects 6% growth for both 2025 and 2026.

As for neighboring countries, Kazakhstan’s GDP is projected to grow by 4.9% in 2025 and 4.1% in 2026, with inflation expected to be 8.2% in 2025 and 6.5% in 2026. In Kyrgyzstan, GDP growth is forecasted at 8.5% in 2025 and 8.6% in 2026, with inflation reaching 6.0% in 2025 and 7.8% in 2026. 

Turkmenistan’s GDP is expected to grow by 6.5% in 2025 and 6.0% in 2026, with inflation at 6.0% for both years. Tajikistan’s economy is also forecasted to expand, with GDP growth projected at 7.4% in 2025 and 6.8% in 2026, and inflation expected to be 5.0% in 2025 and 5.8% in 2026.

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