Progress comes with choices, costs and new challenges. This week’s developments reveal the pressures shaping economic growth, from trade barriers in the Western Balkans and inflation concerns in Europe to investments in AI and cybersecurity. Meanwhile, growing climate risks and renewed international partnerships highlight the need to balance competitiveness, resilience and long-term sustainability.

1. World Bank: Western Balkans Growth to Accelerate, but Trade Barriers Continue to Limit Opportunities

The World Bank’s latest Western Balkans Regular Economic Report projects regional economic growth to accelerate to 3.1% in 2026, up from 2.6% in 2025, before reaching 3.4% in 2027. Despite growing integration into international markets, complex regulations, administrative barriers and high trade costs continue to constrain competitiveness. The report estimates that removing half of the remaining import-related barriers could increase regional GDP by up to 12.5% over the medium term. It calls for streamlined procedures, digitalisation and stronger regulatory coordination to support investment, exports and quality employment.

Source: World Bank

2. European Central Bank Holds Interest Rates as Energy Costs Threaten Inflation and Growth

The European Central Bank kept its three key interest rates unchanged, maintaining the deposit facility rate at 2.50% amid renewed inflationary pressures and economic uncertainty. Rising energy prices are increasing inflation risks while weakening the outlook for economic growth, with tighter financing conditions adding pressure on businesses and households. The ECB reiterated its commitment to bringing inflation sustainably to its 2% medium-term target, emphasising a data-dependent approach to future monetary policy decisions. The announcement highlights the challenges facing European monetary policy as economic growth and price stability come under pressure.

Source: European Central Bank

3. European Commission Introduces New Climate Resilience Framework to Address Growing Environmental Risks

The European Commission presented a new EU Framework for Climate Resilience to strengthen Europe’s ability to anticipate and manage increasingly severe heatwaves, droughts, floods and wildfires. Climate-related damages caused approximately €200 billion in economic losses between 2022 and 2025, underlining the growing cost of environmental risks. The framework promotes integrating climate adaptation into infrastructure planning, public policies and investment decisions, while strengthening cooperation between European, national and local authorities. The initiative positions climate resilience as a strategic priority for economic competitiveness, public safety and sustainable development.

Source: European Commission

4. EU Launches €42 Million in AI Projects to Strengthen Cybersecurity

The European Cybersecurity Competence Centre launched three Horizon Europe projects worth approximately €42 million to develop generative AI applications for cybersecurity. The initiatives aim to improve cyber-threat detection, incident response and the protection of critical infrastructure while advancing trustworthy European AI capabilities. The projects will encourage cooperation among research institutions, businesses and public authorities to develop innovative cybersecurity solutions. The investment supports Europe’s ambitions to strengthen digital sovereignty, technological competitiveness and resilience against increasingly sophisticated cyber threats.

Source: European Cybersecurity Competence Centre

5. EU and Canada Seek Deeper Cooperation on Trade, Technology and Economic Security