Direct impact of US tariffs on EBRD to remain limited, says Chief Economist
As US President Donald Trump continues to shake up the global trading order, EBRD nations aren’t likely to feel the brunt of the disruption. Even so, diminished growth in other countries is set to have ripple effects.
The European Bank for Reconstruction and Development (EBRD), in its recently released Regional Economic Prospects report, cites the uncertainty surrounding trade policies among the main reasons for revising global growth projections for 2025 from 3.5% to 3.2%.
The US government has now threatened 25% tariffs on Canadian and Mexican imports and doubled levies on Chinese goods to 20%. While the direct effects of these policies have been widely discussed, the consequences for other countries remain unclear.
Uncertainty surrounding trade regulations can in itself “have a significant detrimental effect on trade, investment, and production”, said the EBRD. What will also determine global trade patterns is whether the tariffs are applied universally or selectively.
For EBRD regions, however, the direct impact of US tariffs is expected to be limited. According to EBRD Chief Economist Beata Javorcik: “The direct effect of possible US tariffs is going to be limited simply because relatively few countries in Eastern Europe or Central Asia export significant quantities to the US. What’s going to matter more is the indirect effect.”
Javorcik explained that diminished economic growth in advanced Europe will have a ripple effect on their trading partners in EBRD countries. Additionally, US policies may influence emerging markets through two critical channels – cuts to US financial aid and interest rates.
“Discontinuation of financial assistance is going to be felt in Ukraine, Lebanon, Moldova and Mongolia. At the same time, most observers expect the US interest rates to remain high for longer and that will mean higher borrowing costs in international markets for most countries. And this will matter particularly for countries with a high share of external debt in foreign currency,” noted Beata Javorcik.
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Investment flows shift toward to connector economiesTrade tensions created by the US, combined with the ongoing war in Ukraine, are reshaping foreign direct investment (FDI) patterns. Investment between the West, specifically Europe and countries that have imposed sanctions on Russia, and the East, including Russia, China and others, have decreased significantly. As a result, the majority of that investment has been redirected to “connector economies” – countries maintaining strong relations with both blocs.
“We are seeing reconfiguration of global flows of FDI,” said Javorcik. “What we see is a big decline in inflows to China and Germany, and increased inflows to India, for instance. But what's particularly interesting is big increases in inflows to the United Arab Emirates, Egypt, Saudi Arabia, Uzbekistan and Kazakhstan – countries that pursue multi-vector geopolitical policies. And these countries are receiving FDI from everywhere.”
Central Asia and the Caucasus have benefitted the most from this shift. Compared to 2021, countries like Kazakhstan, the Kyrgyz Republic, Georgia and Armenia have seen a 90% rise in exports from the EU in 2024, due to the intermediated trade. Export figures from 2024 are, however, 5% lower than in 2023.
Javorcik noted that Central Asia is exhibiting the fastest growth, that’s “twice the speed of other countries of operations”. The factor driving growth in this region is the overall decrease in inflation across EBRD regions and the increase in real wages. In Central Asia and the Caucasus, wages are now exceeding pre-pandemic levels greatly, fuelling greater purchasing power and consumer spending. In contrast, real wages in EU-EBRD economies remain 9% below pre-Covid levels.
Increased investment interest and growing purchasing power has led to record EBRD commitments in Central Asia. In 2024, the bank “invested €2.26 billion through 121 projects in six regional economies,” reflecting a strategic focus on these emerging markets.
As the global economic landscape continues to shift, the resilience of EBRD economies will depend on their ability to navigate trade disruptions and attract diversified investment. The long-term effects of US policies, geopolitical tensions, and evolving trade relationships will influence the region’s economic trajectory in the years ahead.
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