The European Bank for Reconstruction and Development (EBRD) expects Albania's gross domestic product (GDP) to increase by 3.7% year-on-year in 2025, maintaining its September forecast.

The growth estimate is subject to upside risks from the expected continuation of structural reforms, a strong commitment to EU accession, and the potential for accessing funds and financing through EU integration, the EBRD said in its February 2025 Regional Economic Prospects report.

However, downside risks stem from weakening demand in the eurozone, a decrease in remittances from abroad, and a weaker tourism season than last year.

Furthermore, adverse climate conditions could negatively affect energy production and lead to higher electricity imports although increasing solar generation capacity partially mitigates this risk, the EBRD said.

Albania's economic growth is estimated at 3.9% in 2024. The EBRD expects the economic growth of the Western Balkans region to speed up to 3.6% in 2025 from the estimated rate of 3.5% in 2024.

The EBRD has revised its regional economic forecast for 2025 downwards by 0.3 percentage points relative to its September 2024 outlook. Growth across the economies where the Bank invests is now expected to average 3.2% this year, before picking up to stand at 3.4% in 2026, according to its latest Regional Economic Prospects report.

That downward revision stems primarily from weaker external demand in central Europe, the Baltic states, and south-eastern EU countries. It also reflects the ongoing impact of conflicts and the slow pace of reform in the southern and eastern Mediterranean (SEMED) region.

Ukraine entered 2025 facing weaker economic performance and rising inflation. The Bank has revised the country’s forecast for this year downwards, as Russia’s attacks on electricity infrastructure are continuing to hamper production. Ukraine’s GDP growth is expected to reach 3.5% in 2025, before strengthening to stand at 5.0% in 2026, on the assumption that a ceasefire is in place by the end of 2025.

The new report, entitled “Weaker momentum amid fragmenting trade and investment”, highlights subdued global growth momentum and a persistent gap between the performance of advanced European economies and that of the USA.

The EBRD points out that regional inflation has declined, offering some relief. Indeed, inflation has fallen from a peak of 17.5% in October 2022 to 5.9% in December 2024. Nonetheless, inflation remains more than 1 percentage point above its pre-pandemic average, with price pressures increasingly driven by demand-side factors such as looser fiscal policies and rapid wage growth.

Although the moderation of inflation has been largely in line with expectations, the report flags the fact that interest rates – including rates in the United States – have been declining more slowly than previously anticipated.

According to the report, growth in the Western Balkans is expected to remain stable at 3.6% in both 2025 and 2026. The downward revision to the forecast for this year reflects weaker external demand and smaller domestic spillovers from public investment projects amid tight labor markets.