How Supply-Side Shocks Are Rewiring Eurasia's Growth Calculus

Executive Summary

The global economy is losing momentum as layered supply shocks – geopolitical conflict, tariffs, industrial policy, energy-security concerns and uneven technology diffusion – raise the cost of growth and fragment markets. EY-Parthenon projects global growth easing from 3.4% in 2025 to 2.9% in 2026, before recovering to 3.2% in 2027. The headline figures mask a deeper structural shift: a world in which supply constraints, rather than demand dynamics, increasingly set the terms for business strategy.

For Eurasia, this new paradigm is not a distant macro backdrop but a strategic prompt. The region’s economies – from the European Union to Central Asia, the Caucasus, Türkiye, the Western Balkans and the Caspian basin – are being pulled between rising trade fragmentation and the promise of new economic corridors. Energy shocks, capital reallocation and the race for technological competitiveness are forcing governments and corporates to rethink how they produce, trade and invest.

Introduction

The EY-Parthenon 2026 midyear global economic outlook frames the current environment as a “supply shock world.” The latest Middle East conflict has added another source of disruption through energy, commodities, shipping routes and financial conditions, compounding existing pressures from tariffs and trade restrictions. While a US-Iran peace deal could ease some strains, uncertainty remains elevated.

The more important development is not the size of the growth downgrade but the changing nature of the global economy. Trade restrictions, export controls and industrial policy are reshaping investment flows and accelerating supply-chain regionalization, particularly in sectors tied to semiconductors, energy and critical minerals. AI-related investment is providing an offset, but it is also creating bottlenecks in energy, semiconductors and data centers.

For Eurasia, these shifts carry amplified consequence. The region sits at the intersection of competing economic blocs, energy transit routes and emerging digital infrastructure. Its ability to adapt to this new paradigm will determine not just short-term growth but long-term competitiveness.

A supply-shock paradigm

The global economy has survived successive shocks, but resilience is becoming harder to sustain. EY-Parthenon notes that before the Middle East conflict, the drag from tariffs and policy uncertainty was partly offset by strong AI-related investment and easing financial conditions. The conflict introduced another supply-side shock, raising the risk of drifting toward a more fragmented and structurally weaker trajectory.

This is a world of higher costs and lower efficiency. Tariff rollbacks and carve-outs have prevented a collapse in trade, but companies are still paying a premium for supply-chain reconfiguration. Export controls are creating new barriers, while industrial policy in major economies is redirecting investment toward strategic sectors.

The implications for Eurasia are direct. The European Union is navigating reduced industrial competitiveness, elevated energy prices and demographic pressures. Türkiye and the Western Balkans are exposed to shifts in manufacturing supply chains. Central Asia and the Caucasus are caught between sanctions, trade re-routing and the expansion of the Middle Corridor. The Caspian region’s energy exporters face both opportunities and volatility.

Regional bifurcation

Advanced economies are diverging. The United States remains resilient due to affluent consumers, AI-fueled capital investment and high asset valuations, but remains vulnerable to renewed inflation. The euro area is softening as the Middle East conflict weighs on real incomes and external demand, with Germany’s fiscal expansion and European defense spending only partially offsetting the drag. Japan’s recovery is modest, limited by external demand and demographics.

For Eurasian economies, this bifurcation is an opportunity to reposition. The European supply chain is looking for closer, more stable partners in Eastern Europe and the Western Balkans. Central Asia and the Caucasus are becoming critical nodes for transit trade between Asia and Europe, especially as traditional Russian routes face sanctions and geopolitical friction. Türkiye’s industrial base and logistics position make it a potential bridge, though economic policy volatility remains a constraint.

Business Impact

Corporates operating in Eurasian markets face a more complex operating environment. EY-Parthenon highlights that AI-related investment is a key offset, but it is also creating price pressures in energy, semiconductors and digital infrastructure. For businesses, the strategic response has three dimensions:

Supply-chain resilience: Companies are moving from just-in-time to just-in-case models, creating demand for warehousing, multimodal logistics and diversified sourcing. Eurasia’s trade corridors, including the Middle Corridor, are direct beneficiaries.
Investment reallocation: Tariffs and industrial policy are reshaping cross-border capital flows. Foreign direct investment is increasingly concentrated in sectors aligned with government priorities, such as energy transition, semiconductors and digital infrastructure.
Digital and AI adoption: Productivity gains from AI offer a counterweight to labor constraints and higher costs. Companies that integrate AI into manufacturing, logistics and financial services can gain a competitive edge, but they must navigate energy and talent constraints.

The net effect is a redistribution of value across the region. Companies that can adapt to fragmentation, invest in resilience and capitalize on regional connectivity are likely to outperform those relying on past models of globalization.

Regional Perspective

Eurasia’s response to the supply-shock world is being shaped by several overlapping agendas:

European Union: The EU is prioritizing reindustrialization, energy security and digital sovereignty. Its carbon border adjustment mechanism and supply-chain due diligence rules are changing how regional and global companies operate.
Central Asia: Kazakhstan, Uzbekistan and other Central Asian states are leveraging their positions along the Middle Corridor to attract investment in logistics, agriculture and manufacturing. Trade re-routing from Russia and China has increased their transit significance.
Caucasus and Caspian: Georgia, Azerbaijan and the wider Caspian region are expanding energy and transport infrastructure, but the Middle East conflict and sanctions add geopolitical risk. Azerbaijan’s energy revenues and Georgia’s port projects tie into European energy diversification.
Türkiye and Western Balkans: Türkiye’s manufacturing base and logistics hubs are attracting supply-chain relocation, while the Western Balkans are integrating more closely with EU value chains through investment and infrastructure.
Trade corridors: The Middle Corridor, the Belt and Road, and Trans-Caspian routes are no longer optional ambitions but strategic necessities. Their development is essential for reducing dependence on any single transit route and for building resilience into Eurasian commerce.

Future Outlook

Over the next three to five years, the supply-shock paradigm will continue to shape Eurasian economic policy and business strategy. The following developments are likely:

Acceleration of corridor investment: Governments and international financial institutions will prioritize transport infrastructure, border modernization and trade facilitation along the Middle Corridor and other regional routes. Expect more public-private partnerships.
Energy transition and security: The Caspian region and Central Asia will see investment in renewable energy and hydrogen, alongside traditional hydrocarbons, to meet European demand and diversify their own economies. Critical minerals will be an increasingly important resource.
Digital infrastructure as a competitiveness lever: Data centers, fiber networks and AI platforms will expand, but their energy dependence will create new policy trade-offs. Countries that link digital investment to reliable power supply will gain advantages.
Supply-chain relocation: Automakers, electronics makers and textile producers will continue shifting production to Eastern Europe, Türkiye and parts of Central Asia. The trend will be selective, not automatic, and tied to logistics, labor skills and policy incentives.
Monetary and fiscal divergence: Central banks in the region will face different inflation and growth trajectories, leading to divergent interest-rate policies. Currency volatility and capital-flow shifts will complicate cross-border finance.

AI and digitalization offer the clearest upside. If Eurasian economies can combine their engineering talent, energy resources and geographic position with robust digital infrastructure, they can compensate for some of the productivity losses from fragmentation. The risk is that policy uncertainty and geopolitics continue to undermine long-term planning.

Conclusion

The global economy has entered a period of structural adjustment. Supply shocks, trade fragmentation and technological change are raising the cost of growth and forcing national and corporate strategies to adapt. For Eurasia, the change is double-edged: the region is exposed to the negative forces, but it also stands to gain from a more multipolar, corridor-driven economic order.

The countries and companies that treat the new uncertainty as a planning scenario – not an exception – will be best positioned. Investment in connectivity, energy, digital infrastructure and industrial modernization is not a hedge; it is the core strategy for competitiveness in a supply-shock world.

The key is to act with both pragmatism and ambition. Eurasia’s future is not predetermined by global shocks. It will be shaped by how the region builds its own infrastructure of trust, trade and technology.

Key Takeaways

Global growth is slowing to 2.9% in 2026 due to supply shocks, tariffs and fragmentation, creating a more complex business environment.
Eurasian economies must accelerate infrastructure investment in trade corridors like the Middle Corridor to maintain connectivity.
AI adoption and digital infrastructure are critical offsets to productivity constraints, but their energy dependence must be managed.
Foreign direct investment is being reshaped by industrial policy and geopolitical risk, favoring sectors tied to energy, critical minerals and semiconductors.
Long-term competitiveness in Eurasia will depend on regional integration, supply-chain resilience and policy consistency.