Fitch Cuts Egypt Growth Forecast to 4.9% amid Rising Geopolitical Risks

Fitch Solutions has revised down its growth outlook for Egypt, citing mounting geopolitical risks and persistent inflationary pressures that are expected to weigh on economic activity over the coming fiscal years.

In its latest report, the firm lowered its forecast for Egypt’s real GDP growth in fiscal year 2025/26 to 4.9%, down from a previous estimate of 5.2%. It also trimmed projections for 2026/2027 to 5.2%, compared to 5.4% previously, noting that the economy is entering the new fiscal cycle from a weaker base.

While the report described the economic impact of escalating tensions linked to the U.S.-Iran conflict as “initially limited,” it warned that downside risks are increasing. The outlook hinges heavily on how long the geopolitical tensions persist and whether they escalate further.

The baseline scenario assumes a significant but short-lived conflict lasting no more than four weeks. However, the possibility of a prolonged confrontation remains a key source of uncertainty for Egypt’s economic trajectory.

Fitch attributed the downgrade to a combination of factors, including softer consumption and investment. Elevated inflation, rising production costs, and a reallocation of government spending are expected to dampen domestic demand.

Additionally, net exports are projected to have a negative impact, further constraining overall growth.

The report raised its inflation forecast to around 13% for 2026, driven by higher energy prices, increased import costs, and the depreciation of the Egyptian pound. These factors are expected to erode household purchasing power, limiting private consumption growth, a key engine of the economy.

Investment activity is also likely to slow, as higher financing costs and increased input prices weigh on business expansion. The report pointed to weaker foreign direct investment inflows as another constraint on capital formation in the near term.

Fitch warned that risks to the outlook are firmly tilted to the downside. A prolonged or intensifying conflict could lead to further currency depreciation, disruptions in gas supplies, and additional strain on economic activity.

Such developments would not only pressure growth but could also complicate macroeconomic stability, particularly in relation to inflation and external balances.

Despite the downward revisions, Egypt’s projected growth remains above its historical averages, reflecting a degree of underlying resilience. However, the report underscores that this resilience is increasingly being tested by external shocks and structural pressures.