WASHINGTON, November 24, 2025 – Countries in Europe and Central Asia (ECA) should urgently push to make more efficient use of existing economic assets and invest in the capabilities of its firms and people to unlock faster growth, according to a new World Bank report released today.
The report, TIDES of Change: Igniting Productivity Growth in Europe and Central Asia, finds that simply adding more capital and workers is necessary but not sufficient to boost economic growth because it only represents one part of the growth equation, the other being productivity: a measure of how efficiently that capital and labor are used.
A 10% increase in productivity could add close to 2 million jobs in the region, underscoring the strong link between productivity and employment growth across countries and sectors.
The region’s growth slowdown after the global financial crisis was almost entirely driven by a slowdown in productivity, the report says. This slowdown has coincided with a slower pace of reforms that has allowed market distortions, such as high presence of less efficient state-owned enterprises, to persist, and resources have not been allocated where they can yield the highest returns. Together with incomplete integration into global markets and weak firm capabilities, these factors act as a drag on productivity and have limited countries’ potential. And without productivity improvements, the returns to additional capital investments yield less output than they used to.
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The report adds that boosting productivity ultimately leads to increased welfare, more jobs, and higher wages. If ECA countries’ post-2008 productivity growth had matched its pre-financial crisis pace, the region’s GDP could be roughly 62 percent higher.
The region’s exporters are the most productive firms, and while they make up only a small minority of firms, they disproportionally contribute to jobs, investments, and value added in most ECA countries, the report continues. In fact, ECA countries trade on average 45% less than they could, pointing to a large, untapped potential to expand the benefits from trade integration and foreign direct investment (FDI). The good news is that, if these countries tap that potential, they could also seize the opportunity presented by the current shift by multinational firms toward closer-to-home and more resilient value chains. Exploiting that opportunity will require business environment reforms and strengthening capabilities of domestic firms so they can better engage with these highly productive multinational firms.
Renewed reform momentum is needed to unlock the region’s productivity potential through targeted action across trade, investment, digitalization, efficiency, and skills (TIDES), the report says.
““The evidence is compelling,” said Asad Alam, Regional Director for Europe and Central Asia, Prosperity at the World Bank. “When competition is robust, when firms can access technology and finance, when trade and investment is open, and when workers have the skills to adopt technologies and adapt, productivity rises. Firms grow, employ more people, and show greater business dynamism. This propels the growth of incomes and the success of countries.”
The report uses new and unique firm-level data to offer new insight into productivity trends and into the drivers and magnitude of productivity bottlenecks and opportunities of countries in ECA. The data harmonizes more than 40 million firm-level observations assembled from national statistical offices, tax revenue offices, and complementary sources across 16 countries and multiple sectors spanning the years 2008-2023.
The findings underscore the urgent need for a revitalized reform agenda, including the crucial role of governments in mainstreaming the productivity agenda into national plans and budgets, enabling market competition, ensuring transparency in public procurement, and measuring progress on reforms. With the right policies and commitment from policy makers, business leaders, and partners, countries in ECA can regain momentum and transform their economic future, the report says.
World Bank