The World Bank has downgraded our growth outlook for the current fiscal year yet again: The international lender has penciled in growth slowing to 2.8% in the state’s FY 2023-24 — a 0.7 percentage point drop from its previous forecast in January and a whole 1.0 percentage point drop from the previous fiscal year — it said in its latest MENA Economic Update (pdf).

The rationale: The bank pointed to our “sluggish industrial sector performance” and high inflation in its assessment of the country’s growth trajectory. The report also highlighted that while the war on Gaza has increased economic uncertainty across the region, “Egypt could suffer the largest fiscal effects from the combined effects of the Suez Canal crisis and the conflict in the Middle East, as a result of lower fiscal revenues and tourism receipts.”

And it could get worse: The downgraded projections “assume that the conflict in the Middle East will not expand,” the report writes, warning that “If fighting were to worsen or continue for a protracted period,” Egypt would face an even greater strain on its FX revenues from tourism and the Suez Canal.

ICYMI: This is the second time already this year that the bank has lowered our growth outlook for the fiscal year. Growth projections were scaled back 0.2 percentage points to 3.5% at the start of the year on the back of ongoing economic challenges and the risk of a heightened regional conflict intensifying “pressures on external accounts through implications on tourism, remittances, and oil trade balance” and exacerbating “the inflation problem, eroding households’ purchasing power and constraining activity in the private sector.”

But on the plus side: The lender now expects the country’s economic growth to pick up next year to 4.2% in the next fiscal year — in line with the Madbouly government’s forecast — a 0.3 percentage point upward revision on its previous outlook.

The bank’s forecast is significantly lower than what the government and other institutions are predicting: The Madbouly government sees the economy growing at a 3.5% clip in the fiscal year ending June 2024, along with S&P Global Ratings. The IMF revised its growth outlook downwards to 3.0% in January.

The World Bank sees our budget deficit widening to 6.5% in 2024, up from 6% in 2023, “as tax revenue shrinks from a slowing economy while interest payments rise because of a devalued currency and monetary tightening.”

But across the region, growth is expected to rebound, with the World Bank forecasting GDP growth accelerating to pre-pandemic levels of 2.7%, up from 1.9% in 2023. GCC economies are expected to see an even bigger rebound, with growth expected to increase to 2.8% in 2024, up 0.9% the year before, as oil production cuts are phased out and non-oil sectors benefit from ongoing diversification efforts.

** You can check out our full rundown of the report’s updated projections for Saudi Arabia on EnterpriseKSA and for the United Arab Emirates onEnterpriseUAE.

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