Fitch's BMI lowers Egyptian growth forecast amid indirect impact of US tariff uncertainty

Egypt Today

29-05-2025

Cairo – May 29, 2025: Fitch Solutions' research arm BMI has revised its forecast for Egypt's economic growth in FY2025/2026, lowering it slightly to 4.7 percent, down from an earlier estimate of 5.0 percent.
The downgrade reflects mounting global trade uncertainty stemming from new U.S. tariffs, which BMI says have indirectly affected Egypt through weakened external demand and heightened investor caution.
Despite the slight downward revision, the projected 4.7 percent expansion marks a notable improvement from the 3.9 percent growth BMI expects for the current FY2024/2025.
The firm attributes the expected acceleration to a significant boost in private consumption, driven by public and private sector wage increases, reduced borrowing costs, and a recent expansion in social protection programs. Investment activity is also projected to continue its recovery, further supporting overall economic growth.
BMI's forecast remains more optimistic than other major projections, with the Egyptian government seeing GDP growing by 4.5 percent in FY2025/2026 and rising to 5.0 percent in FY2026/2027.
Meanwhile, the International Monetary Fund recently upgraded its forecast for Egypt to 4.3 percent growth in FY2025/2026, and the European Bank for Reconstruction and Development projects 4.4 percent growth over the same period.
While the new U.S. tariffs are expected to have only a limited direct impact on Egypt's economy, BMI noted that the indirect effects are more significant.
Egyptian exports to the U.S. represented just 0.8 percent of GDP in 2024, and the average effective tariff rate on Egyptian goods stands at 10.7 percent, below that faced by most emerging markets. In fact, BMI suggests that the current tariff regime could enhance the competitiveness of Egyptian apparel exports — which make up half of the country's U.S.-bound shipments — given the higher duties imposed on Chinese and Southeast Asian products.
The larger concern, BMI says, is the impact on investor sentiment. Foreigners currently hold around $35 billion in LE-denominated treasury bills, with approximately $22 billion considered highly vulnerable to shifts in global risk perception.
Following the April 2 announcement of U.S. tariffs, Egypt saw about $2 billion in capital outflows within a week, leading to a temporary depreciation of the LE against the dollar.
This volatility, BMI argues, revealed a shift in the authorities' approach to the exchange rate. The Egyptian pound's decline, though short-lived, signaled a growing commitment to exchange rate flexibility. Going forward, BMI expects policymakers to tolerate modest currency depreciation in response to external shocks rather than defending the pound through foreign reserve depletion. The LE is projected to trade between 50 and 55 per $during 2025, ending the year at around 52.50.
The temporary truce on tariffs, which paused further U.S. measures for 90 days, helped restore calm in financial markets, reverse capital outflows, and strengthen the Egyptian pound, BMI said. After hitting a post-float low of 51.72–51.75 against the dollar last month, the pound has since rebounded and is now trading below the LE 50 mark.
BMI also touched on the outlook for Suez Canal revenues, which have been hit hard by disruptions in the Red Sea. Since Q3 2023, ship traffic through the canal has dropped by half, slashing its contribution to GDP from 2.2 percent to 1.1 percent and resulting in monthly foreign currency losses of about $500 million. While navigation is expected to normalize in FY2025/2026, global trade headwinds are likely to slow the pace of recovery.
On the external balance front, BMI expects Egypt's current account deficit to narrow to 5.2 percent of GDP in FY2025/2026 — equivalent to about $18.5 billion — down from an estimated 7.1 percent this fiscal year. This improvement comes despite surging imports, driven largely by demand for consumer goods, raw materials, and capital equipment. If import growth underperforms current projections, the deficit could shrink further to 4.3 percent of GDP, or roughly $15.5 billion.
Lower global oil prices are not expected to significantly ease Egypt's import bill. BMI anticipates that declining domestic hydrocarbon production will force the country to increase energy imports in volume terms to meet growing local demand.
In terms of monetary policy, BMI has scaled back its earlier projection of 900 basis points in rate cuts through 2025, now expecting a more moderate 500 basis point reduction. The firm cited pressure from the IMF, which has urged Egyptian policymakers to tread carefully with monetary easing to avoid inflationary risks tied to U.S. tariffs and other external pressures.