World Bank revises Egypt’s growth forecast to 2.5%, assuming no regional conflict escalation

Cairo – October 17, 2024: In its latest economic update, the World Bank (WB) revealed that it has revised its growth forecast for the Egyptian economy, now expecting a growth rate of 2.5 percent for fiscal year 2024/2025, a decrease of 0.7 percentage points from the earlier estimate of 4.2 percent made in June.

The forecast was lowered “due to weak manufacturing activity, import restrictions, a downturn in gas extraction operations, and reduced shipping through the Suez Canal”.

The bank estimates that Egypt’s economic growth will see an uptick in fiscal year 2025/2026, reaching 3.5 percent, according to their semi-annual MENA Economic Update - Growth in the Middle East and North Africa - highlighting ongoing economic challenges.

The World Bank emphasized that its forecasts assume the regional conflict will not escalate further. Should tensions rise, the resulting “negative spillovers” could adversely impact business and consumer confidence, tourism, and overall financial stability, it added.

The Egyptian government’s own estimate is slightly more optimistic, projecting a growth rate of 4.0 percent for fiscal year 2024/2025. Despite the downward revisions, the economy is still expected to improve from last year’s estimated growth of 2.5 percent.

Regionally, the MENA area is projected to grow by 2.2 percent this year, down from the earlier forecast of 2.8 percent, with a projected 3.8 percent growth next year.

Fiscal Deficits

Egypt is expected to see an improved fiscal deficit in fiscal year 2024/2025 to hit 3.6 percent from 6 percent in fiscal year 2023/2024, the WB noted, adding “This improvement is primarily due to the one-off recording of the EGP equivalent of half of the fresh inflows from the Ras El-Hekma deal, amounting to $12 billion into fiscal revenues.”

“This exceptional revenue boost has outweighed the constrained fiscal space caused by high interest payments and low domestic tax revenue, which reflects ongoing challenges in consumption and economic activity, especially affecting value-added tax revenues,” according to the report.

For fiscal year 2025/2025, Egypt is estimated to see its fiscal deficit to significantly widen to 7 percent.

Egypt, Tunisia, Jordan, Morocco, and the West Bank and Gaza are forecast to post current account deficits this year, the WB report explained. It added that Egypt’s current account deficit “is set to widen to 5.3 percent of GDP in fiscal year [2024/2025], from a 1.2 percent deficit in [fiscal year 2023/2024].” It projected that the fiscal deficit will decline in fiscal year 2025/2026, dropping to 3.9 percent.

“The widening deficit is largely driven by an expanding trade deficit, resulting from a reduction in oil exports coupled with an increase in non-oil imports, as well as decreased revenue from reduced shipping through the Suez Canal,” it wrote.

Suez Canal Revenues

A key factor in the WB’s latest forecast is the anticipated decline in Suez Canal revenues, projected to fall to $4.8 billion this fiscal year, nearly half of the $8.8 billion recorded in fiscal year 2022/2023 – “a decline that represents 8 percent of Egypt’s projected reserves” - and represents a 27 percent drop from the expected $6.6 billion for fiscal year 2023/2024.

Escalating security risks in the Red Sea are driving shipping companies away from the canal, further complicating Egypt’s economic landscape.

The WB noted that “the uncertainty of the conflict looms large over portfolio investments, heightening investors’ apprehension across the region”.

Suez Canal revenues decreased from $9.4 billion in fiscal year 2022/2023 to $7.2 billion during fiscal year 2023/2024, according to Osama Rabie, chairperson of the Suez Canal Authority (SCA) in a recent panel.

Inflation

Inflation continues to decline, mainly due to the Central Bank of Egypt’s recent measures to float the local currency and unify the exchange rate, with the bank estimating that Egypt’s inflation will reach 17.2 percent in the coming fiscal year.

However, annual headline inflation rose to 26.4 percent in September, with potential increases expected in the coming months.

This report was released ahead of the World Bank and IMF Annual Meetings in Washington, D.C., scheduled for October 21-26, underscoring the significance of these discussions in light of the revised forecasts.