An air of cautious optimism characterizes Egypt’s economic outlook: Egypt’s economy is currently enjoying positive momentum with recent inflation data as well as the relative stability of the exchange rate representing positive indicators for the economy moving forward, French banking giant BNP Paribas said in a research note seen by EnterpriseAM. While support from international donors and institutions has aided Egypt’s path to economic recovery, deep-seated structural problems pertaining to the country’s public finances and external account position will only be resolved “very gradually,” the bank said.

FX liquidity, stability are pivotal factors on our path to recovery: FX liquidity and the continued stabilization of the foreign exchange market will be the key factors for sustaining Egypt’s recovery in the next two years — a recovery that the bank said will be driven by household consumption, which has already shown signs of recovery in the first half of the current fiscal year. However, the bank expects a “more balanced recovery” to take place starting in 2026.

Investment is expected to remain slow in the short term: Egypt’s fiscal consolidation efforts under its program with the International Monetary Fund will slow public sector investment in the short term, while “productive investment” from the private sector is not expected to pick up starting 2026. Meanwhile, Egypt’s capacity utilization — that is, the extent to which the economy is using its productive capacity — remains below 70% on average, well below the minimum of 90% needed to trigger an investment drive, the bank said.

BNP sees gradual GDP growth, inflation slowdown over the next two years: The bank sees GDP growing 4% in FY 2024-25, followed by a “moderate acceleration” to 4.7% growth in FY 2025-26. The bank also sees inflation slowing significantly to 19.8% this year — down from 33.6% last year — before dropping even further to 10.3% in 2026, placing it just over the Central Bank of Egypt’s target of an average of 7% ±2 percentage points by 4Q 2026.

REMEMBER- Inflation continued to dip in January — but at a considerably slower rate — with the latest reading coming in at 24.0%, down from 24.1% in December. While this figure marks the nation’s lowest inflation reading since December 2022, it still represented a loss of momentum in the country’s inflation slowdown, with the figure coming in higher than many analysts expected.

Meanwhile, there’s no clear consensus on the country’s GDP outlook over the next two years: Capital Economics penciled in a prediction of 5.3% growth for FY 2025-26, slightly higher than the IMF and the World Bank’s respective predictions of 4.1% and 4.2%.

“Cautious optimism” appears to be a common sentiment among analysts over Egypt’s economic outlook: Morgan Stanley echoed a similar view describing the overall sentiment over Egypt’s economy among local stakeholders during its recent trip to Cairo. Similarly, Morgan Stanley projected cooling inflation and significant rate cuts taking place this year, while penciling in predictions of further deterioration for the EGP in the process. A separate visit from Goldman Sachs last month voiced similar conclusions, expecting “deep rate cuts” while suggesting that the exchange rate would remain “well-supported” in the short term.

THE POTENTIAL IMPLICATIONS OF TRUMP’S SECOND TERM IN OFFICE-

Donald Trump’s second term as US president is expected to come with multiple implications for Egypt’s economy, with the bank singling out the new administration’s impact on geopolitics in the region as the key factor of concern for Egypt in the short term. Continued support for a ceasefire in Gaza on the US’s part could help strengthen maritime traffic through the Suez Canal and bring up tourism revenues, contributing to a better picture for Egypt’s economy.

On the energy front, the US’ push toward increasing LNG production and export capacity in the future of its energy policy “is unlikely to have a positive short-term impact on Egypt’s energy bill.” While the US is expected to increase its exports of LNG in 2025, “the effects of the new export licences will not be felt for a few years,” the bank said.

The EGP is expected to continue to deteriorate against the greenback: In the short term, the EGP is projected to continue to fall against the USD as a result of the greenback’s “strength on international markets and the increase in the current account deficit,” but the drop is expected to take place at a “moderate pace.”

The new administration is not expected to have a large impact on Egypt’s current account balance: “All in all, we feel that the potential consequences of the new US administration’s policy on external accounts will be relatively balanced and, in principle, limited in scope. They could be fairly positive on the current account balance and neutral or even negative on the financing side.”

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