Regional Economic Outlook. Summer’25
10 July 2025. — In early 2025, the region’s economies showed varying growth rates, shaped by both domestic factors and external conditions.
Russia: economic cooling and reduced price pressures
Russia’s economy entered a cooling phase after passing the peak of economic activity. In Q1 2025, GDP growth slowed to 1.4% YoY, while seasonally adjusted quarterly dynamics showed a contraction of 4.3%. Inflation remained elevated but began to ease. In this context, the Bank of Russia initiated key rate cuts. Budget execution was marked by a widening deficit.
Outlook: GDP growth is forecast at 1.6% in 2025, stabilising at around 2% in 2026–2027. Inflation is expected to return to target levels by 2027, while the rouble may weaken to RUB 97–98 per US dollar in 2026–2027.
Kazakhstan: strong growth amid rising oil output, increased public investment and accelerating inflation
Kazakhstan’s economy recorded real GDP growth of 5.6% YoY in Q1 2025, though seasonally adjusted quarterly growth slowed to 0.6%. Growth was driven by transport, warehousing, manufacturing, mining and construction. Inflationary pressures continued to rise, with inflation accelerating to 11.3% in May. The National Bank has kept its base rate at 16.5% since March.
Outlook: Real GDP growth is projected at 5.0% in 2025, slowing to 4.5% in 2026 and 4.3% in 2027. Inflation is expected to remain above the target range of 7–9%. The tenge may depreciate to KZT 560 per US dollar by 2027, amid potentially lower withdrawals from the National Fund and persistently higher inflation compared with Kazakhstan’s trading partners.
Armenia: stabilised growth, with inflation accelerating due to non-monetary factors
Armenia’s economy began recovering from a weak Q4 2024, with seasonally adjusted quarterly GDP growth reaching 2.9% in Q1 2025, while the annual rate slowed to 5.2% YoY due to declining exports. Domestic demand remained the main driver, supported by rising remittances, wages and lending. In May, inflation accelerated to 4.3%, exceeding the Central Bank's target.
Outlook: GDP growth is forecast at 4.9% in 2025, driven by domestic demand backed by lending and fiscal stimulus. Medium-term growth is expected to align with its potential rate of 4–5%. The budget deficit may widen to 5.6% of GDP in 2025, mainly due to increased current (primarily social) and capital expenditure. By end-2025, inflation is projected to rise to 4.5%. Monetary policy will aim to bring inflation back within the target range of 3% (±1.0) in 2026–2027.
Belarus: growth amid high investment activity, but with accelerating inflation
Belarus’s economy exceeded expectations with 3.1% YoY growth in Q1 2025, fuelled by an increase in investment (+18.3%). However, inflationary pressures persisted, with annual inflation rising to 5.9%. The National Bank tightened prudential standards and raised bank rates, but lending activity remained strong. The current account posted a deficit of 11.3% of GDP in Q1 2025, while the trade balance turned negative.
Outlook: GDP growth is forecast at 2.8% in 2025 and is projected to slow to around 1% in 2026–2027. Inflation will remain above target, driven by strong domestic demand and spillover from inflation in Russia. Fiscal policy will be marked by a gradual increase in the budget surplus, with the primary balance surplus expected to remain at 1.5–2% of GDP through 2025–2027.
Kyrgyz Republic: accelerating growth and inflation
The Kyrgyz Republic posted strong GDP growth of 13.1% YoY, underpinned by construction and industrial production. Consumption and net exports also contributed to growth. The budget recorded a surplus of 14% of GDP, primarily due to profit transfers from the National Bank. In May, inflation rose to 8.0% YoY, exceeding the 5–7% target range, due to rising food prices and electricity tariffs.
Outlook: GDP growth is expected at 8.1% in 2025, with a moderation to 5.4–5.6% in the following years. Inflation is projected to remain within the target range, at around 6.5%. The budget surplus will amount to 2.5% of GDP in 2025 but is expected to decline as tax revenues decrease.
Tajikistan: consistently high economic growth and remittances amid low consumer inflation
Tajikistan sustained robust GDP growth of 8.2% YoY. The main drivers were consumer demand, supported by rising remittances and real wages, along with exports of metal ores and aluminium. remained close to the lower bound of the National Bank’s target range, prompting two key rate cuts, lowering the policy rate to 8.25%. The state budget recorded a 4% of GDP surplus in Q1 2025, driven by increased tax and non-tax revenues. The current account was also in surplus (15.3% of GDP), supported by strong inflows to primary and secondary income accounts, particularly migrant remittances (+19.6% of GDP YoY). Net financial outflows rose to 7.6% of GDP, up from 3.6% in Q1 2024, due to the government’s repayment of Eurobonds in March 2025.
The GDP growth outlook remains unchanged: GDP growth is projected at 7.5% in 2025, declining to 6.7% by 2027 due to slower growth in Russia and a reduction in remittance inflows. The 2025 average annual inflation forecast has been revised downward from 5.5% to 4.6%, reflecting current trends and falling global food prices. In 2026 and 2027, inflation is projected to remain within the National Bank’s target range, at 4.9% and 5%, respectively. The budget is expected to show a moderate deficit due to high infrastructure-related spending.
The main domestic risks in most countries in the region are associated with a potential decline in investment activity, intensifying inflationary pressures from wage and tariff growth, and the overheating of economies due to lending and fiscal stimulus. Nonetheless, even if these risks materialise, we do not expect critical imbalances to emerge that would threaten macroeconomic or financial stability in the region’s countries.
The full version of “Regional Economic Outlook. Summer’25" is available on the Eurasian Fund for Stabilization and Development (EFSD) website at the following link.
Additional Information:
The EFSD Regional Economic Outlook has been published quarterly since 2024. Full editions are released in April and October, with brief updates published in July and December. All publications are available on our website.