The EFSD presented the Regional Economic Outlook AUTUMN'2025
A significant trend in the region has been a more pronounced slowdown in Russia's economy in the first half of the year than it was initially expected. The cooling of the Russian economy has not yet had a significant effect on other economies in the region, except for Belarus, where the economic momentum has notably weakened.
A significant trend in the region has been a more pronounced slowdown in Russia's economy in the first half of the year than it was initially expected. The cooling of the Russian economy has not yet had a significant effect on other economies in the region, except for Belarus, where the economic momentum has notably weakened. Other EFSD member states continued to demonstrate robust economic growth. In some countries, economic activity even accelerated in the first half of the year, driven by fiscal stimulus and rapid credit expansion. However, the acceleration of economic activity in Kazakhstan and the Kyrgyz Republic has been accompanied by a sharp increase in inflationary pressures.
Taking into account recent economic trends and changes in external conditions, we have slightly revised our baseline forecast presented in the summer outlook. Despite the gradual transition towards more balanced growth, economic activity in some countries is likely to remain overheated in the near term, resulting in persistent inflationary pressures and greater vulnerability to market-driven factors. Nevertheless, we expect fiscal and monetary policies in most countries to remain focused on maintaining macroeconomic balances.
The shift in the risk balance is primarily related to the cooling of the Russian economy. In some countries, especially Armenia and Belarus, this could significantly weaken external demand and lead to a slowdown or even a reduction in investment and trade flows. In Kyrgyz Republic and Tajikistan, a likely contraction in external demand may be accompanied by a substantial decline in remittances, particularly in light of the expected weakening of the rouble. A common risk for our countries is a potential fall in the prices of key export commodities and resources if global demand softens.
Russia’s economy continues on a soft-landing trajectory, with a steady slowdown in activity. The deceleration became more pronounced, with all key sectors – industrial production, trade and construction – slowing during the quarter. GDP growth for 2025 is expected to reach 1.1%. Inflationary pressures are easing, with consumer inflation expected to slow to 7.6% by year-end. The Bank of Russia remains focused on a gradual easing of monetary policy, with the key rate projected to decline to 16% per annum by the end of the year. The average annual rouble exchange rate is forecast at RUB 85 per US dollar. Recession risks for Russia’s economy are assessed as low. Business activity is normalising smoothly, with overcooling concerns limited to certain sectors.
Kazakhstan is recording stronger-than-expected growth in 2025. GDP is forecasted to increase by 5.7% in 2025 due to expanded oil production at the Tengiz field, alongside multiplier effects on transport, trade and construction. Strong investment activity, including government-backed infrastructure projects, will also play a key role. By end-2025, inflation is expected to reach 11.7%, driven by several pro-inflationary factors: VAT increases, expansionary fiscal policy and depreciation of the tenge. In response to growing inflation risks, the National Bank is expected to maintain tight monetary policy. In the medium term, economic growth is expected to gradually slow to around 4.2–4.5%, with inflation remaining above the target range while monetary policy remains tight. Inflation risks remain elevated due to strong inflation expectations and the prolonged persistence of a positive output gap. Compared to the previous forecast, there is also an increased risk of tenge depreciation.
In Armenia, GDP growth is forecast at 6.2% in 2025, supported by strong domestic demand, credit expansion, and fiscal measures. Inflation has stabilized at 3.6%. The budget shows an increase in tax revenues, while both current and capital expenditures are under-executed. The current account balance recorded a deficit due to a decline in the re-export of precious metals and a downturn in tourism. Risks include a slowdown in economic growth as previously supportive factors dissipate, increasing dependence on domestic demand, and an overvaluation of the national currency. Additionally, a positive credit gap stimulates domestic demand and increases the banking system’s vulnerability. Uncertainties remain in fiscal policy, partly due to growing fiscal commitments to support resettlers from Nagorno-Karabakh.
Belarus faced a faster-than-expected slowdown in economic growth, thus the real GDP growth forecast for 2025 has been revised down by 1.1 p.p. to 1.6%. Contraction in external demand and decreased consumer activity are weighing on economic dynamics despite investment growth supported by changes in investment legislation. Inflation accelerated to 7.3% in the second quarter, influenced by high inflation in Russia and a surge in fruit and vegetable prices. Strong domestic demand and weaker external demand contributed to expanding deficits in foreign trade and the current account, while the currency market remains relatively stable. Risks of a more stimulative government policy amid weaker external demand remain. The use of administrative measures to curb inflationary pressures carries the risk of deepening price imbalances, which would negatively affect company margins and investment plans. Sanctions against Russia and Belarus maintain uncertainty and may have both negative and positive effects.
Kyrgyzstan shows robust economic growth – about 9% in 2025, in line with the pace of the past three years – driven by accelerated construction in infrastructure and housing sectors and strong domestic demand. Inflation is expected to rise to 8.1%, exceeding the National Bank’s target range of 5–7%. The national budget remains in surplus but faces increasing deficit risks due to declining tax revenues. Risks include inflationary pressure linked to rising fuel and lubricant prices, budgetary strains from large-scale programmes for recapitalising state-owned enterprises and supporting infrastructure mega-projects, as well as potential declines in remittances.
Tajikistan’s economy is expected to slow slightly to 7.8% growth in 2025, mainly due to weaker consumer demand. Economic activity is supported by investment in infrastructure projects and housing construction, as well as by the expansion of exports driven by rapid growth in mining output. Investment activity in infrastructure and housing and mining exports is intensifying. Consumer inflation remains low at around 3.9%, and the budget runs a surplus. However, the economy remains vulnerable to external shocks due to dependence on remittances and imports. Key risks include rising public debt and costs associated with completing the Rogun HPP, posing challenges to fiscal sustainability. Quasi-fiscal risks posed by state-owned enterprises, particularly in the electricity sector where tariffs are not expected to reach cost recovery until 2027, add further pressure.
Despite ongoing risks and vulnerability to external shocks, the ESDF does not expect critical imbalances that could threaten the macroeconomic and financial stability of the Fund’s member states.
With the full version of "Autumn'2025. The Regional Economic Review" is available on the EFSD website at the link.
You can also study the brief conclusions by following the link.