Compared to previous projections in June, the World Bank has lowered its expectations for Egypt’s GDP growth, which was initially anticipated to be 2.8 percent in FY2024 and 4.2 percent in FY2025.

The decline in FY2024 is attributed to weaknesses in manufacturing activity, import restrictions, a decrease in gas extraction operations, and reduced shipping traffic through the Suez Canal.

Positive outlook for FY2026
 

The report anticipates GDP growth of 4.2 percent in FY2026, suggesting a gradual recovery driven by favourable base effects and an improved investment climate, particularly highlighted by the recent UAE deal.

Consumer trends, inflation dynamics
 

Additionally, private consumption has shown signs of improvement, and inflation is gradually decreasing, with an expected rise in remittances.

However, this recovery could be tempered by fluctuating international oil prices.

Inflation decreased to 25.6 percent as of August 2024, down from an average of 33.6 percent in FY2024, following 24.1 percent in FY2023. It is projected to recover to 17.2 percent in FY2025.

This decline is mainly due to the Central Bank of Egypt’s (CBE) decision to depreciate the Egyptian pound against the US dollar and unify the exchange rate, addressing the foreign currency crisis.

The CBE has also increased interest rates by 600 basis points.

Macroeconomic stabilization amid challenges
 

Egypt is implementing macroeconomic stabilization measures and structural reforms despite the ongoing geopolitical tensions.

The report noted an improvement in the industrial production index in recent months, despite challenges from regional conflicts and repercussions of the foreign exchange crisis from March 2022 to 2024.

Furthermore, unemployment has recently declined to 6.5 percent in the fourth quarter of FY2023.

Fiscal outlook, government debt
 

However, the budget deficit is projected to increase to seven percent of the GDP in FY2025, driven by rising interest payments and the diminishing impact of the Ras El-Hekma deal.

Off-budget borrowing is also expected to be contained due to a reduction in public investment following a recent ministerial decree.

In addition, the government debt-to-GDP ratio is anticipated to reach 91.6 percent in FY2025 and 87 percent in FY2026.

The report also suggested that the financing gap would likely be closed in the short term.

The World Bank Group has pledged $6 billion in financial support for Egypt over the next three years, in light of the Israeli war in Gaza and its impact on trade routes through the Suez Canal.