September 2, 2025/Cordros Report
After navigating a succession of macroeconomic shocks, ranging from currency volatility and inflationary surges to external trade disruptions, Egypt’s economy showed early signs of stabilization in 9M-24/25, with a real GDP growth rebounding to 4.18% y/y, higher than the 2.31% y/y recorded in 9M-23/24. Following a sharp currency devaluation in March 2024, which marked a shift to a more flexible exchange rate system, the Egyptian pound has exhibited less volatility, thereby anchoring inflation expectations.
Inflation fell to an average of 28.47% y/y in 2024FY, a drop from 33.79% in 2023FY. However, elevated food prices and higher energy prices due to subsidy cuts have kept inflation high, sustaining figures in double digits. The current account deficit widened further in 2024FY largely reflecting higher net imports payments and lower net services income induced by the global trade disruptions at its Suez Canal global shipping route.
Nonetheless, improved capital inflows induced by reforms and privatization policies as well as IMF disbursements under the Extended Fund Facility (EFF) Program have supported the accretion in its external reserves. Fiscal consolidation, public sector reform and privatization activities have supported a moderation in fiscal deficit growth and debt accumulation.
Outlook: Easing Pressures, Lingering Gaps
We expect further GDP growth expansion in 2025/26FY, as pressures continue to ease, likely increasing to an average of 4.3% y/y. Inflation is also likely to sustain its decline, aided by reduced currency volatility and lower global commodity prices. Higher diaspora remittances and stronger non-oil exports may significantly narrow the current account deficit to 3.12% of GDP in 2025/26FY. A more robust FX reserve and reduced structural FX constraints are likely to keep the Egyptian pound relatively stable, with a likely depreciation of 3.0% YTD.
The easing of inflation will likely induce more interest rate cuts in Q4-25, although persistent global and currency risks could underpin a still cautious approach to monetary easing. The government’s reluctance to divest public assets and fully phase out subsidies, as required under the IMF Extended Fund Facility (EFF), is expected to slow both privatization and fiscal consolidation, with the fiscal deficit projected to reach 7.5% of GDP in 2025/26FY.
