World Bank: Europe and Central Asia Show Resilience but Face Jobs, Growth Hurdles

The World Bank’s latest Europe and Central Asia Economic Update, titled “Jobs and Prosperity,” paints a picture of resilient but slowing growth across the region as it continues to navigate global headwinds, geopolitical tensions, and structural economic challenges. Released today, the report highlights that while the Europe and Central Asia (ECA) region has withstood recent economic shocks, deep reforms are essential to sustain productivity, job creation, and long-term prosperity.

According to the report, regional GDP is projected to grow by 2.4 percent in 2025, down from 3.7 percent in 2024. The slowdown is largely attributed to weaker growth in the Russian Federation, which accounts for nearly 40 percent of the region’s total output. Excluding Russia, growth across developing ECA economies is expected to hold steady at around 3.3 percent this year and next, reflecting moderate resilience in Central Europe, the Western Balkans, Türkiye, and Central Asia.

“Developing economies in the region need to undertake bold reforms to translate resilience into stronger growth in productivity, output, and jobs,” said Antonella Bassani, World Bank Vice President for Europe and Central Asia. “It is important for countries to strengthen their private sectors, improve education, and connect better internationally, regionally, and domestically, while attracting more private capital. The region’s challenge is to increase job opportunities and transform low-skill jobs into high-quality employment.”

Slowing Growth, Rising Pressures

The report underscores that slowing global demand, persistent inflation, and reduced trade flows are weighing on growth prospects across Europe and Central Asia. Several countries in Eastern Europe and the South Caucasus are facing fiscal pressures, while higher interest rates and external financing constraints are dampening private investment.

Despite these challenges, ECA economies have demonstrated remarkable resilience following multiple crises, including the COVID-19 pandemic, Russia’s invasion of Ukraine, energy supply disruptions, and global inflation spikes. Fiscal policy adjustments, improved energy diversification, and regional trade partnerships have helped stabilize many economies.

However, the World Bank warns that without structural reforms, the region risks falling into a prolonged phase of “low-growth, low-productivity equilibrium.”

The Jobs Imperative

The Jobs and Prosperity report places a special emphasis on employment and labor market transformation as the key to reigniting growth. Over the past 15 years, total employment in the region has risen by 12 percent, driven primarily by expansion in the services sector, which now accounts for more than half of all jobs.

Yet, many of these new positions are low-skilled and low-paying, with limited potential for wage growth or innovation. Productivity growth has stagnated, and labor market polarization has widened the gap between high-skill urban jobs and low-skill rural employment.

“While employment has expanded, the quality of jobs has not kept pace,” the report notes. “The challenge is to transition from quantity to quality—by creating productive, well-paying, and sustainable employment.”

“Each country can tailor its approach to best use its assets—human talent, physical infrastructure, institutions, and natural resources,” said Ivailo Izvorski, World Bank Chief Economist for Europe and Central Asia. “Expanding job opportunities can benefit nearly all workers as different industries require different skillsets. Focusing on these areas gives policymakers a real chance to tackle the jobs challenge and generate growth.”

Demographic Shifts and Labor Market Strain

One of the report’s most striking findings concerns demographic trends that could reshape the region’s labor markets for decades. The working-age population in Europe and Central Asia is projected to shrink by 17 million in the coming years, particularly in Eastern and Central Europe and the Western Balkans.

This demographic decline poses risks for productivity, fiscal sustainability, and social security systems. Aging populations will place greater pressure on public spending and reduce the pool of available labor, potentially undermining competitiveness.

By contrast, Central Asian countries and Türkiye are experiencing a youth bulge, with their working-age populations expected to continue growing. These nations face a different challenge — generating sufficient high-quality jobs to absorb millions of new entrants into the labor market each year.

“Demographics are pulling the region in two directions,” said the report. “Some countries need to address labor shortages, while others must create opportunities for rapidly growing youth populations. Both require forward-looking labor and education policies.”

Structural Barriers to Growth

The World Bank identifies a set of structural impediments that continue to hold back productivity and job creation in the ECA region. These include:

• Fragmented private sectors dominated by small firms that struggle to scale up;

• Underdeveloped credit and venture capital markets that limit innovation;

• Weak education and training systems that fail to equip workers with relevant skills;

• Subdued competition and excessive dominance of state-owned enterprises (SOEs); and

• Infrastructure bottlenecks that hinder trade and regional integration.

Addressing these challenges, the report argues, requires coordinated reforms that mobilize private investment, modernize financial systems, and foster an innovation-friendly ecosystem.

Policy Priorities: From Resilience to Prosperity

To turn resilience into long-term prosperity, the World Bank recommends a comprehensive policy framework centered on job creation, skills development, and private sector dynamism.

1. Invest in physical and human capital: Upgrading infrastructure—especially in transport, digital connectivity, and clean energy—will improve business competitiveness. Simultaneously, investments in education, vocational training, and higher education are vital to equip workers for evolving labor markets.

2. Foster private sector growth and entrepreneurship: Governments should streamline regulations, expand access to finance, and reduce barriers to entry for startups and small enterprises. Public-private partnerships can help accelerate investment in key sectors.

3. Promote inclusion and gender equality: The report highlights the untapped potential of women and young workers, who remain underrepresented in the labor force. Expanding access to childcare, flexible work arrangements, and equal pay policies could boost labor participation and overall productivity.

4. Deepen regional integration: Enhanced trade and connectivity across borders can drive competitiveness and reduce economic fragmentation. Strengthening ties between the EU, Western Balkans, and Central Asia can unlock new value chains and market opportunities.

The Road Ahead: A Turning Point for the Region

While the short-term outlook for Europe and Central Asia remains steady, the report stresses that reforms must accelerate to ensure that growth becomes more inclusive and sustainable.

The region’s long history of economic adaptability gives reason for optimism. Countries like Poland, Georgia, and Kazakhstan have shown that strategic reforms in education, digitalization, and governance can yield rapid productivity gains.

But as Bassani cautioned, resilience alone is not enough.

“The region has weathered many storms,” she said. “Now is the time to transform resilience into opportunity — to build the foundations of a more dynamic, innovative, and inclusive Europe and Central Asia.”

The Europe and Central Asia Economic Update: Jobs and Prosperity makes clear that the path forward depends on investing in people, enabling private enterprise, and connecting economies—three pillars that can turn today’s stability into tomorrow’s shared prosperity.