BMI slashes Egypt’s GDP growth forecast to 4.5% as pressure mounts from war in the Gulf

Fitch Solutions’ research arm, BMI, cut its forecast for growth of the Egyptian economy to 4.5% in the current fiscal year, down from 5.2% before the outbreak of the war in the Gulf, BMI Senior MENA Country Risk Analyst Abdalla Saleh said in a webinar attended by EnterpriseAM. The updated forecast, released last week during the conflict’s sixth week, marks a 0.4 percentage point cut from the mid-March outlook, which was based on the baseline assumption that the war would last only four weeks.

REMEMBER- BMI isn’t the only one trimming the country’s growth forecast as the consequences of the war and its impact become clearer. Oxford Economics downgraded its 2026 GDP forecast by 0.4 percentage points to 4.5%, a figure slightly more optimistic than the IMF’s, which projects growth at 4.2%, a 0.5 percentage-point cut from its January projection.

The drivers: The EGP’s loss of ground against the USD and spiraling input costs are weighing on the economy. “Egypt is a net importer of many basic products, so a weaker currency shows up very quickly in the CPI inflation,” Saleh noted. BMI raised its 2026 inflation forecast to 14.6% from 11.7%, interrupting a recent disinflationary trend after actual March inflation jumped to 15.1% y-o-y.

The policy trade-off: Holding the line on the exchange rate has helped preserve the country’s USD 52.8 bn in FX reserves. The currency’s 10% depreciation since the conflict began is “helping reassure investors,” Saleh noted. Egypt has seen about USD 5 bn in portfolio outflows since the outbreak of the war, while the EGP has changed hands for 50-55 to the greenback since the conflict began.

The Central Bank of Egypt will likely leave interest rates unchanged, delivering at most 100 bps for the remainder of the year, Saleh said. Following a recent 30% fuel hike, BMI anticipates additional increases in electricity and fuel prices as the government seeks to curb spending and protect the FY 2025-26 budget.

The regional outlook

The entire Middle East is feeling the pain: The broader MENA growth outlook has been dragged down by 2.9 percentage points to just 1%, “making it the slowest growing region globally,” BMI MENA Country Risk Associate Director Mariette Kas-Hanna noted. This aligns closely with recent IMF projections placing MENA growth at 1.1%, though the fund remains more optimistic about the UAE, forecasting 3.1% growth.

The base case: A diplomatic resolution remains the most likely scenario, with a 55% probability of an “extend to end” outcome, Senior Director and Head of Banking and MENA Country Risk Ramona Moubarak explains. That scenario sees hostilities contained through April as both the US and Iran try to avoid the cost of a full-scale war, bringing Brent crude to an average of USD 78 / bbl, she added.

The escalation risks: There is a 45% chance that the conflict escalates, carrying severe implications for global energy markets. Scenarios involving maritime chokepoint closures and US strikes on Iranian assets could push Brent crude to average USD 80–95 / bbl, with temporary peaks between USD 115 and USD 130. A worst-case scenario of uncontrolled war and severe infrastructure damage could see prices peak at USD 150 / bbl in June.