Egypt’s economy to grow 5% in FY 2025/2026

CAIRO – 20 August 2026: The Central Bank of Egypt has revised its economic growth forecasts upward for the current and next fiscal years, citing the economy’s stronger-than-expected resilience to the US-Iran conflict and wider geopolitical tensions.

Despite the improved outlook, the CBE warned in its latest Monetary Policy Report that inflationary pressures and regional developments remain the main risks to Egypt’s economic recovery.

Real GDP is now expected to expand by 5 percent in FY 2025/2026 and 4.9 percent in FY 2026/2027. Both estimates were raised by 0.1 percentage points from the bank’s previous forecasts. Growth is projected to accelerate further to 5.4 percent in FY 2027/2028.

The revision was partly supported by a faster-than-anticipated recovery in Suez Canal activity, with canal revenues rising 29 percent year-on-year during the first quarter of 2026.

Manufacturing and services, particularly tourism, are expected to remain the main engines of growth. The extractive sector is also forecast to improve as oil and gas production increases in FY 2027/2028.

However, inflation is expected to remain elevated in the near term. Headline inflation averaged 14.6 percent during the second quarter, slightly below the CBE’s previous projection of 15 percent.

The bank expects inflation to rise temporarily in the third quarter due to base effects before returning to a downward path.

Under its baseline scenario, the CBE forecasts average inflation of 16.6 percent in FY 2026/2027, followed by a decline to 8.1 percent in FY 2027/2028. This would bring inflation closer to the bank’s target of 7 percent, plus or minus 2 percentage points, during the second half of 2027.

Egypt’s external position has also strengthened. Net international reserves increased to $55.1 billion at the end of June from $52.8 billion in March. Meanwhile, the banking sector’s net foreign assets rose to $22.9 billion in May, compared with $21.4 billion in March.

The Egyptian pound also appreciated against the US dollar, reaching approximately LE 49.2 per dollar at the end of June, compared with LE 54.6 three months earlier.

These improvements came despite foreign capital outflows of $9.5 billion following the outbreak of the regional conflict in late February, reflecting the economy’s ability to absorb part of the external shock.

The current account, however, continues to pose a challenge. Its deficit more than doubled year-on-year to $5.1 billion, equivalent to 1.2 percent of GDP, during the first quarter of 2026. The increase was driven by wider oil and non-oil trade deficits and a larger net investment income shortfall.

Higher remittances from Egyptians working abroad, alongside strong tourism and Suez Canal revenues, helped mitigate these pressures. Egypt’s overall balance of payments recorded a modest surplus of $0.3 billion.

The CBE estimates that every 1 percent depreciation in the pound increases headline inflation by an average of approximately 0.18 percentage points during the first year following the shock. The impact on core inflation is estimated at around 0.2 percentage points.

The bank noted that the transition to a more flexible exchange-rate system could gradually reduce the extent to which currency movements feed through to inflation.

The Monetary Policy Committee left interest rates unchanged at its May and July meetings, maintaining a restrictive monetary stance to support inflation’s return to target.

Under alternative scenarios, the CBE expects inflation to average 15.2 percent in FY 2026/2027 if the conflict subsides and 17.8 percent if it escalates, compared with 16.6 percent under the baseline scenario.

The committee is holding its fifth meeting of the year on Thursday to determine the direction of interest rates after leaving them unchanged at its previous three meetings.

The meeting follows an increase in annual urban inflation to 14.9 percent in July, marking its first rise since March. Meanwhile, the full effect of the 12 percent electricity price increase announced during the month has yet to be reflected in inflation figures.