Unlocking Economic Growth: How Investing in Jobs Can Transform Europe and Central Asia

Economic Resilience Amid Challenges

Economic growth in Europe and Central Asia (ECA) has slowed, but the region has remained resilient amid continued global and regional challenges, according to the World Bank’s latest Europe and Central Asia Economic Update: Jobs and Prosperity.

Regional GDP is likely to grow by 2.4 percent in real terms this year, down from 3.7 percent in 2024, driven primarily by a weaker pace of expansion in the Russian Federation. Excluding Russia, which accounts for about 40 percent of the region’s output, growth is likely to remain little changed at about 3.3 percent this year and next.

The Need for Bold Reforms

"Developing economies in the region need to undertake bold reforms to translate resilience into stronger growth in productivity, output, and jobs that fit with the region’s shifting demographics and capitalize on their natural advantages," 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."

Special Focus on Jobs

In a special focus on jobs, the report finds that investing in infrastructure, improving the business environment, and mobilizing private capital will be critical to jumpstarting productivity.

Countries need to begin by investing in the foundation for jobs – physical and human infrastructure. Improving the quality of education, particularly vocational and higher education, is also necessary. There is still untapped potential among women and young people, who are underrepresented in the labor force.

Job Creation and Challenges

The region has created significant jobs over the last decades, yet slowing growth, lagging productivity, and weak reform momentum are amplifying job challenges. While employment in ECA has increased by 12 percent over the last 15 years, particularly in services which now account for more than half of jobs, the report finds that most opportunities have been in relatively low-skilled jobs with limited earning potential.

Demographic and Structural Headwinds

Demographic headwinds threaten labor market resilience: the working-age population is projected to decrease by 17 million over the next decades, a decline concentrated in Eastern and Central Europe and the Western Balkans. In Central Asia and Türkiye, the working-age population will grow, putting a different kind of pressure on the labor market. Structural impediments limit ECA’s potential, such as the abundance of small firms that rarely scale up, undeveloped credit and venture finance markets, underperforming education and training systems, subdued competition, and state-owned enterprises (SOEs) that dampen business dynamism and market efficiency.

Tailored Approaches for Growth

"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."