The EFSD presented the Regional Economic Prospects SPRING'2025

18 April 2025

The EFSD presented the Regional Economic Prospects SPRING'2025

In 2025, most countries in the region—except Kazakhstan—are projected to experience slower economic growth amid weakening contributions from cyclical factors. Early signs of cooling have been observed in Russia’s economy since the beginning of the year. Growth is also decelerating in Armenia and Belarus, while economic activity remains robust in Kazakhstan, the Kyrgyz Republic, and Tajikistan.

Our baseline forecast for 2025–2027 has not changed significantly from the previous round. Most economies are expected to achieve a soft landing over the medium term as cyclical drivers fade. However, inflationary pressures will persist in a number of countries, and balance-of-payments resilience may deteriorate slightly.

The global economy has entered a period of complex transformation, driven by revolutionary shifts in the rules of international trade. Following the announcement of higher tariffs, uncertainty over the US administration’s trade policies has been compounded by questions about how major economies will respond to these restrictions and how global trade and production will adapt to the new reality.

The balance of risks for major economies and economic blocs—including the US, EU, China, India, Japan, and others—has deteriorated sharply. The materialization of these risks could significantly dampen global demand, negatively impacting smaller economies, including those in the region. Smaller economies also face headwinds from trade-flow reorientation and the outflow of financial and labor resources back to Russia as it adapts to geopolitical changes.

"Despite heightened risks and lingering vulnerability to external shocks, we do not expect critical imbalances to emerge in the Eurasian Fund for Stabilization and Development (EFSD) member states that could threaten macroeconomic or financial stability in the region," notes EFSD Chief Economist Sergey Ulatov.

RUSSIA
In 2025, the Russian economy enters a phase of gradual cooling, with the first signs of slowdown already visible at the beginning of the year. GDP growth is expected to decelerate to 1.9%, down from 4.1% in 2024. Inflation will gradually decline from current double-digit levels to 7.9% by the end of the year. There are indications that the Central Bank of Russia will begin a monetary easing cycle in mid-2025, and the key rate is projected to reach 17% by year-end. The average exchange rate of the ruble is expected to remain near its equilibrium level, supporting external balance and fiscal stability while creating predictable conditions for economic growth. The main risks to the baseline scenario stem from external factors, including oil price volatility and economic actors’ behavior amid expectations of sanctions easing.

KAZAKHSTAN
In 2025, Kazakhstan’s economy will continue to demonstrate strong growth, with GDP expanding by 5.2%. The forecast has been slightly revised upward due to higher-than-expected growth at the end of 2024 and its carry-over effect into early 2025. The key drivers of growth will be increased oil production and exports, the implementation of major infrastructure projects, and higher public investment. Inflation is projected to accelerate to 10.6% by the end of 2025, driven by strong domestic pro-inflationary factors. The National Bank of Kazakhstan intends to maintain tight monetary conditions and will not transition to easing before 2026; the average key interest rate in 2025 is expected to be 16.5%. The deterioration of key macroeconomic indicators could primarily be triggered by a decline in global commodity prices. Another risk to economic growth is the potential shortfall in planned oil production volumes

ARMENIA
In 2025, Armenia’s GDP growth will slow to 4.7%, following a high base effect from the previous year. The growth dynamics will be driven by domestic demand, supported by expansionary fiscal and monetary policies as well as increased lending. These same factors will contribute to bringing inflation back within the target range of the Central Bank of Armenia. A significant rise in government spending—both current (primarily social programs) and capital—will widen the budget deficit to 5.7% of GDP. The current account deficit will also increase as the temporary positive impact of foreign trade factors diminishes. Under the baseline scenario, economic growth in 2026–2027 is expected to stabilize near its potential rate, ranging between 4.0% and 5.0%, which will help keep inflation close to the target level.

The Armenian economy faces the risk of a temporary slowdown in activity as the contribution of cyclical factors weakens. Fiscal risks are associated with lower-than-expected tax revenues and potential under-execution of spending plans. Another factor that could increase fiscal pressure is higher social spending due to delays in labor market integration for resettlers from Nagorno-Karabakh. Armenia faces the possibility of temporary economic slowdown as cyclical support factors weaken. Budget risks are associated with revenue shortfalls relative to targets and potential underspending against planned expenditures.

BELARUS
Belarus' economic growth is projected to decelerate to 1.6% in 2025, reflecting spillover effects from Russia's slowdown and tighter domestic macroeconomic policies. Medium-term growth is expected to converge toward its potential level. Persistent pressures from domestic demand, labor market tightness, and imported inflation from Russia continue to pose upside risks to price stability. Currently, inflation remains under control through the price regulation system, restrictive monetary measures, and relative exchange rate stability. Inflation is expected to average 6-7% in 2025-2026. Fiscal policy is anticipated to remain neutral despite a gradually widening surplus, while slowing economic activity and normalization of trade terms will support external balance and contain the current account deficit.

Domestic risks to Belarus' baseline scenario stem from potential continuation of growth-stimulus policies amid weakening external demand and deteriorating trade conditions. Meanwhile, domestic buffers against shocks remain limited. External risks are associated with growing uncertainty regarding the Russian economy.

KYRGYZ REPUBLIC
The Kyrgyz economy is projected to maintain above-potential growth through 2025-2027, expanding by 5.9%, 5.6%, and 5.4% year-on-year respectively. The rapid services sector growth observed over the past three years will moderate, while construction and industry will maintain strong performance. Accelerating food prices in late 2024-early 2025 and planned electricity tariff hikes in May 2025 will increase inflationary pressures. Annual inflation in 2025 is expected to approach the upper bound of the central bank's target range, averaging 6.7%. Barring additional shocks, price growth will moderate to around 6.0% in 2026-2027. The republican budget will remain in surplus, supported by high non-tax revenues including dividends from state-owned enterprises and National Bank profits, along with income from temporary budget fund placements. The balance of payments normalization trend observed since Q2 2024 is expected to continue through 2027.

Key risks include growing support for inefficient energy sector enterprises and implementation of large infrastructure projects. Budget revenues may decline due to reduced goods imports and gold production.

TAJIKISTAN
Tajikistan's economic growth will slow to 7.5% in 2025 as domestic demand weakens amid declining remittance inflows relative to GDP. The state budget deficit will range between 1.5-0.7% of GDP in 2025-2027, with authorities maintaining conservative policies given limited fiscal space. The current account surplus will narrow to 2.5% GDP in 2025 before turning to a 1.9% deficit by 2027. Remittances will gradually return to long-term trends after 2022-2024 peaks, though the balance of payments will remain stable due to reduced capital outflows (including FX purchases). With global food prices remaining elevated in 2025, inflation is expected to hover near the upper bound of the target range before moderating to mid-range levels in the medium term.

External deterioration could reduce remittance inflows and exports. Inflation risks primarily stem from potential food price increases exceeding baseline projections. Fiscal sustainability risks may materialize from delays in international donor funding or cost overruns in major infrastructure projects.