Navigating the Future: World Bank Warns of Slowing Growth in Europe and Central Asia, Highlighting AI as a Vital Economic Catalyst

WASHINGTON — Economic expansion across Europe and Central Asia is projected to moderate over the coming years, weighed down by persistent global uncertainties, higher energy prices, and sluggish activity among key trading partners. According to the World Bank’s latest regional flagship publication, Making AI Work: Jobs, Firms, and Productivity, regional growth is forecast to slow to 2.2 percent in 2026, down from an estimated 2.6 percent in 2025.

Despite these headwinds, developing economies within the region continue to display notable resilience. Bolstered by domestic demand, structural adjustments, and targeted government policies, countries across the territory are actively seeking new drivers of long-term economic dynamism. Among the most potent of these potential catalysts is artificial intelligence (AI). As demographic pressures mount and working-age populations shrink, the World Bank suggests that strategic integration of AI could significantly enhance productivity, offset labor shortages, and fundamentally reshape the economic landscape of Europe and Central Asia.

Main Facts

The latest economic update released by the World Bank paints a comprehensive picture of a region navigating a complex macroeconomic transition. The primary takeaways from the report include:

Moderating Growth Trajectory: Regional GDP growth is expected to decelerate from 2.6 percent in 2025 to 2.2 percent in 2026. Excluding Russia—which accounts for approximately 40 percent of the region’s total output—growth is forecasted to moderate from 3.7 percent to 3.0 percent over the same period.
Persistent Headwinds: The broad-based slowdown is driven by elevated energy prices, sluggish economic expansion within the European Union, intensifying regional competition in automotive supply chains, and external trade frictions.
Subregional Disparities: Central Asia remains the fastest-growing subregion, led by extraordinary projected expansions in Kyrgyzstan (9.6 percent) and Uzbekistan (7.9 percent) in 2026. Conversely, Ukraine’s economy is expected to expand by a modest 1.2 percent due to ongoing infrastructure destruction and export disruptions.
The AI Adoption Gap: While about one in five workers in the region—predominantly young and well-educated professionals—hold jobs with significant AI exposure, fewer than one in ten firms currently utilize AI technologies, and mostly for basic administrative tasks.
The Core Economic Prescription: To capture the economic dividends of AI, governments must upgrade foundational educational curricula, foster advanced managerial skills, and reform labor market and social protection institutions to handle systemic workplace disruptions.

Chronology of Regional Economic Shifts

To understand the current economic projections for 2025 and 2026, it is essential to contextualize the timeline of shocks and adaptations that have defined Europe and Central Asia over the past several years.

The Pandemic and Post-Lockdown Rebound (2020–2021)

The region suffered severe contractions during the global COVID-19 pandemic, followed by a vigorous, albeit uneven, post-lockdown rebound. Supply chain bottlenecks and rising global demand began putting upward pressure on inflation and commodities as early as late 2021.

Geopolitical Shocks and Energy Crises (2022–2023)

The outbreak of the war in Ukraine in early 2022 sent shockwaves through global energy and agricultural markets. European nations faced unprecedented natural gas supply disruptions, forcing a rapid restructuring of energy imports, accelerated green transitions, and the implementation of massive fiscal relief packages to shield households and enterprises from surging utility bills.

Stabilization and Resilience (2024–2025)

Despite global market disruptions having a more muted overall impact than initially feared, high interest rates and tighter global financing conditions cooled expansion. During this period, developing economies demonstrated unexpected structural resilience through reduced energy intensity, robust domestic demand, high remittance inflows, and steady tourism. By 2025, regional growth stabilized at an estimated 2.6 percent, even as structural industrial weaknesses in the EU began trickling down to regional manufacturing exporters.

The Looming Moderation and AI Threshold (2026 and Beyond)

Entering 2026, the region faces a controlled deceleration to 2.2 percent growth. Concurrently, policymakers are confronting a structural technological inflection point. Artificial intelligence is permeating the global economy faster than local institutional frameworks can absorb it, setting the stage for a critical decade of digital transformation or potential economic stagnation.

Supporting Data and Subregional Performance

The deceleration in regional growth is not distributed uniformly. Performance varies sharply across subregions, driven by distinct local factors, geopolitical realities, and structural conditions.

Subregional Breakdown

Central Asia: Retaining its crown as the economic powerhouse of growth in the region, Central Asia is estimated to expand by 5.8 percent in 2026. Individual standout nations include Kyrgyzstan, where growth is projected to surge to 9.6 percent, and Uzbekistan, tracking closely at 7.9 percent. Robust domestic demand, public investment, and strong regional trade ties continue to fuel these high numbers.
The Western Balkans: Economic activity in the Western Balkans is anticipated to strengthen, with growth projected to tick up to 3.1 percent in 2026 from 2.6 percent in 2025. Ongoing infrastructure projects and integration efforts with European markets are providing a steady tailwind.
Central Europe: Poland stands out as a pillar of stability within Central Europe, with economic growth holding steady at 3.6 percent, supported by resilient domestic consumption and robust EU fund absorption.
Eastern Europe and Ukraine: Ukraine continues to demonstrate remarkable grit, though its growth is expected to slow to 1.2 percent in 2026. This deceleration reflects intensified, ongoing damage to critical energy and transport infrastructure, as well as persistent constraints on export logistics.

Macroeconomic Pressures

Inflationary pressures remain stubbornly elevated across many parts of the region, largely sustained by high energy costs. Furthermore, sluggish industrial activity within the European Union—compounded by rising global competition—has placed a heavy burden on the region’s industrial and automotive supply chains, which rely heavily on EU export markets.

On the risk horizon, the World Bank notes several critical downside vulnerabilities. These include:

Further disruptions to international trade routes.
The continuation or escalation of hostilities in Ukraine.
Spikes in energy, transport, and fertilizer costs.
Tighter global financing conditions that could restrict capital flows.
Increasingly frequent and severe extreme weather events linked to global climate change.

Official Responses and Perspectives

Senior leadership at the World Bank emphasize that while immediate macroeconomic risks are concerning, long-term strategic vision must not be sidelined.

Antonella Bassani, World Bank Vice President for Europe and Central Asia, underscored the dual nature of the region’s current resilience and future challenges:

"Developing economies in the region continue to show resilience due to reduced energy intensity, stepped-up government policies, and robust domestic demand. To increase productivity and help offset a shrinking working-age population, countries can harness the potential of artificial intelligence by strengthening foundational educational and managerial skills, while preparing labor market and social protection institutions for this disruptive change."

Addressing the specific dynamics of technological integration, Ivailo Izvorski, World Bank Chief Economist for Europe and Central Asia, highlighted that the primary danger facing the region is not over-automation, but rather a profound deficit of adoption:

"While the private sector needs to be the principal engine of adoption, adaptation, and innovation, readying the workforce for AI gives policymakers a real chance to tackle the jobs challenge and generate growth. The main risk over the next decade is likely to be too little adoption and adaptation of AI across the region, not too much."

Implications: Making AI Work for Jobs, Firms, and Productivity

The special focus on artificial intelligence within the World Bank’s update reveals a paradox: while the infrastructure prerequisites for a digital economy are largely in place across Europe and Central Asia—including near-universal mobile coverage, competitive energy costs, and a deep pool of technical talent—actual commercial implementation lags severely behind.

The Adoption Deficit

According to the report, fewer than one in ten firms in the region currently utilize AI tools, and those that do generally restrict their use to basic administrative or repetitive tasks. Conversely, roughly 20 percent of the workforce—disproportionately represented by young, highly educated professionals—hold occupations that are deeply exposed to AI automation and enhancement.

This disconnect highlights a significant structural friction: AI is arriving faster than local firms and educational systems can absorb it.

Bridging the Gap: Skills, Capital, and Infrastructure

To unlock the transformative potential of AI—moving beyond baseline efficiency gains to the creation of entirely new products, services, occupations, and economic sectors—policymakers and business leaders must focus on two fundamental pillars:

Human Capital Development: Educational systems must be overhauled to prioritize foundational cognitive skills, complex problem-solving, and advanced managerial capabilities. Lifelong learning initiatives must be integrated into labor market frameworks to retrain workers whose roles are disrupted by automation.
Private Capital and Computing Capacity: The private sector must be empowered to act as the primary engine of technological innovation. Governments can catalyze private capital inflows by expanding affordable access to high-performance computing infrastructure. Doing so not only aids domestic business integration but also opens up lucrative export opportunities for computing capacity where global demand exists.

Social Protection and Inclusive Growth

As labor markets undergo this technological shock, social safety nets must be modernized. Traditional employment protections designed for 20th-century industrial economies are often ill-equipped to handle the fluid nature of AI-driven labor markets. By proactively strengthening social protection institutions, governments can ensure that the productivity gains generated by artificial intelligence translate into inclusive, widespread prosperity rather than widening inequality.

Ultimately, navigating the projected economic slowdown of 2026 will require a delicate balancing act. While managing short-term fiscal pressures, energy costs, and trade uncertainties, countries in Europe and Central Asia must boldly embrace the digital frontier. By strategically investing in people, infrastructure, and innovation, the region can transform demographic pressures and technological disruption into enduring economic strength.