EBRD Lowers Egypt’s GDP Growth Forecast for 2025 but Anticipates Recovery in 2026

The EBRD has lowered Egypt’s GDP growth forecast for 2025 to 4.2 percent and fiscal year-end growth to 3.6 percent. However, a recovery is expected in 2026, driven by improved investor confidence and economic reforms. Despite a modest economic growth rate of 2.9 percent in the previous year, inflation rates are expected to decline, although high debt-servicing costs may limit fiscal flexibility.

The European Bank for Reconstruction and Development (EBRD) has adjusted its economic forecast for Egypt, reducing the GDP growth prediction for 2025 to 4.2 percent, a decrease of 0.3 percentage points from an earlier estimate made in September. Furthermore, the EBRD has lowered its projection for Egypt’s fiscal year ending in June 2025 to 3.6 percent, reflecting a decline of 0.4 percentage points as detailed in their recent Regional Economic Prospects report.

Despite the downward revision, the EBRD foresees a rebound in 2026, projecting GDP growth at 4.7 percent and 4.6 percent for the fiscal year 2025/2026, attributing this optimism to enhanced investor confidence and continued economic reforms. For the previous year, the EBRD reported that Egypt’s economy expanded by 2.9 percent, which is also a downward revision of 0.3 percentage points from previous forecasts.

The report indicates an uptick in economic activity during the first quarter of FY2024/2025, following a turbulent phase characterized by macroeconomic instability and fluctuations in currency value. Growth is expected to be spearheaded by significant sectors such as communications, accommodation and food services, transportation and storage (excluding the Suez Canal), financial services, and manufacturing, which is beginning to recover from its prior slowdown.

In addition, the EBRD anticipates a further easing of inflation, with prices likely to decrease due to base effects and stringent monetary policies, although possible adjustments in fuel prices may be a consideration. As of January, the inflation rate was recorded at 24 percent, marking the lowest level since December 2022.

The Ras El Hekma agreement has enhanced Egypt’s external financial position; however, the EBRD has warned that economic vulnerabilities remain. The nation’s debt-to-GDP ratio is forecasted to decline from 96 percent to 85 percent in FY2024/2025, but high debt-servicing costs continue to pose a challenge. Estimates suggest that 50 to 60 percent of government expenditure in the current fiscal year will be allocated to servicing debt, maintaining high fiscal pressures despite observed improvements.

In conclusion, the EBRD has revised its GDP growth forecast for Egypt downward, highlighting concerns about ongoing economic vulnerabilities despite anticipated recovery in 2026. Key sectors are expected to drive growth, while inflation is projected to ease. However, the significant portion of government spending dedicated to debt servicing remains a point of concern for fiscal sustainability.

Original Source: www.egypttoday.com