Expectations regarding the growth of the economy had been positive before the onset of the US-Israel war on Iran. However, the adverse developments that have come in its wake have cast a dark shadow that is likely to weigh on overall economic performance.
The January edition of the World Economic Outlook report issued by the International Monetary Fund (IMF) revised its projections for Egypt’s economic growth upwards for the second time in three months.
The report projected that Egypt’s economy would grow by 4.7 per cent in the current fiscal year and by 5.4 per cent in 2026-2027, compared with earlier estimates of 4.5 per cent and 4.7 per cent respectively in October.
These projections for the current fiscal year, which ends on 30 June, remain slightly below the government’s target of five per cent growth, compared to the 4.4 per cent achieved in 2024-2025.
But global economic growth is now expected to decline from four per cent to 2.6 per cent in 2025-2026, according to Alia Al-Mahdi, a professor of economics at Cairo University. For Egypt, the rate would be around four per cent, less than the IMF’s January projections.
Al-Mahdi added that a downturn in the global economy typically leads to reduced demand for imports, which in turn negatively affects Egyptian exports. She noted that the escalation of the war and its repercussions on the Gulf states, key external markets for Egyptian exports, would further intensify the pressure on exports.
The war has led to the closure of the Strait of Hormuz and caused disruptions to maritime traffic in the Red Sea, amid threats by the Iran-aligned Houthi group to shut the Bab Al-Mandab Strait. This places the revenues of the Suez Canal in a precarious position, bearing in mind their role as a key component of economic growth and a major source of foreign currency.
Traffic through the Suez Canal had already been adversely affected by the Israel-Hamas war in Gaza, before beginning to recover following the ceasefire agreement last year.
In the first quarter of the current fiscal year, Egypt’s economy recorded its fastest growth rate in 3.5 years at 5.3 per cent, supported by improved revenues from the Suez Canal, a rebound in the tourism sector, and growth in manufacturing industries as well as a hike in exports.
During this quarter, the Suez Canal returned to revenue growth for the first time since December 2024.
All service sectors are likely to be affected by energy-saving measures that include early closure hours for shopping malls, cafés, and restaurants, Al-Mahdi stated, noting that this coincides with an increase in production costs due to higher import bills as a result of increased insurance premiums on shipping and the appreciation of the dollar.
The Purchasing Managers’ Index (PMI) issued by S&P Global declined to 48 points in March, down from 48.9 in February, marking the fourth consecutive month below the 50-point threshold and the lowest reading in 23 months.
The PMI Index is a monthly economic indicator that measures non-oil private-sector activity and confidence. A reading above 50 signals expansion, while one below 50 indicates contraction compared to the previous month.
Egypt’s non-oil private-sector activity recorded a sharp drop in March, falling to its lowest level in two years, as demand weakened and prices rose amid the war.
According to the index, the war has decreased customer demand as prices have increased. Moreover, input costs have risen sharply, with inflation accelerating to its highest level in 18 months, driven by increases in fuel prices, production inputs, and the dollar exchange rate, with manufacturers bearing the brunt of these pressures.
The industrial sector contributes 17.7 per cent of GDP and employs around 30 per cent of the total workforce, or 2.5 million workers across 38,000 industrial establishments.
In early March, press reports cited Douglas Winslow, senior director at the American rating agency Fitch Ratings, as saying that Egypt’s annual economic growth is expected to accelerate to 4.7 per cent in the current fiscal year, rising to 4.9 per cent in 2026-2027 supported by declining inflation and lower interest rates, which have stimulated consumption and investment.
Egypt’s annual growth rate rose from 2.4 per cent in 2023-2024 to 4.4 per cent in 2024-2025, exceeding the targeted rate of 4.2 per cent for that year. Winslow attributed this increase to an improvement in the energy trade deficit, alongside the gradual recovery of revenues from the Suez Canal.
The health and education sectors, among others, also played a key role in supporting growth rates.
Al-Mahdi believes that most foreign-currency earning sectors are likely to be negatively affected by the war, beginning with Suez Canal revenues, exports, and tourism. The latter, she noted, would be impacted as tourist-originating countries face rising energy costs, which in turn affect living standards, alongside higher airfares due to increased fuel prices.
Inbound tourism to Egypt is likely to suffer, given the country’s proximity to the war zone, she said.
The tourism sector witnessed a strong recovery in 2025, supported by improved security conditions, the relative affordability of travel to Egypt following the depreciation of the Egyptian pound, and the momentum generated by the opening of the Grand Egyptian Museum (GEM) in November.
Egypt is targeting the arrival of more than 21 million tourists this year, after recording a historic high of 19 million in 2025, according to Minister of Tourism Sherif Fathy.
Mohamed Hassan of Alpha Financial Investments Management expects economic growth to decline by one per cent if the war persists. A prolonged conflict would entail sustained increases in oil and gas prices, negatively affecting the economies of tourism-exporting countries and consequently reducing the number of visitors to Egypt, he said.
He added that the global surge in oil prices would place additional pressure on the state budget, as the government seeks to absorb the differential, particularly amid the continued rise of the dollar.
The industrial sector, in particular, is expected to face mounting cost pressures due to higher import prices and increased fuel costs, he said.
Since the outbreak of the war in February, the dollar has risen against the Egyptian pound from LE46 to nearly LE55, resulting in a depreciation of more than 14.5 per cent in the pound’s value.
Hassan believes that the financial services sector may prove more resilient to the repercussions of the war, whereas the real-estate sector is likely to be severely affected, with demand weakening significantly in the face of rising prices driven by higher input costs.
In a report released before the outbreak of the war under the title “Egypt Construction Sector Outlook”, Fitch Solutions projected an acceleration in the growth of Egypt’s construction sector over 2025-2026 and 2026-2027, supported by strong activity in infrastructure projects, particularly in the energy, utilities, and transport sectors.
The report noted that this momentum reflects the state’s continued focus on developing infrastructure networks and strengthening economic capacity through investment in strategic sectors.
Fitch Solutions forecast a steady increase in real growth in the construction sector in the coming years, rising from 4.1 per cent in 2024-2025 to 5.6 per cent in 2026-2027 and 6.6 per cent in 2027-2028.
* A version of this article appears in print in the 9 April, 2026 edition of Al-Ahram Weekly.
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