"The National in its report": The Egyptian economy continues to show a notable degree of resilience
A report issued by National Bank of Kuwait stated that the Egyptian economy continues to demonstrate notable resilience despite the resurgence of geopolitical tensions and elevated external volatility. GDP growth accelerated, supported by robust household spending and thriving activities in the tourism, construction, refining, and Suez Canal services sectors.
The report added that GDP growth accelerated to 5% year-on-year in the first quarter of 2026 (January–March 2026), compared to approximately 4.8% in the same period last year, according to the Ministry of Planning.
This stronger-than-expected performance occurred despite the outbreak of the US-Iran conflict near the end of the quarter, which disrupted supply chains and drove up global oil prices. Household consumption remained the primary driver of growth, followed by government spending, while private investment continued to make a relatively modest contribution.
Conversely, net exports acted as a drag on economic activity due to higher import costs associated with the regional conflict. Sectoral performance was broadly positive in the non-oil economy, with the Suez Canal (+24% year-on-year), tourism (+8.3%), and construction (+5.2%) sectors recording strong growth rates.
Construction activity returned to growth after contracting in the previous quarter, supported by the continued implementation of infrastructure projects and urban expansion plans. Meanwhile, the refining sector achieved strong growth of 15% year-on-year, as international energy companies resumed operations following government efforts to settle outstanding financial dues owed to them.
The Purchasing Managers’ Index (PMI) fell to 46 points in June, down from 47.1 points in May, remaining below the 50-point threshold separating contraction from expansion for the sixth consecutive month. This reading marks the weakest business conditions since January 2023, reflecting ongoing challenges facing the non-oil private sector and indicating a potential slowdown in GDP growth to slightly below 4.0% year-on-year by the end of the second quarter.
The survey revealed a broad-based slowdown, with companies reporting weak demand, declining new orders, falling production, ongoing job cuts, and reduced purchasing activity. Companies also pointed to supply chain disruptions, liquidity constraints, and shortages of raw materials, while the regional conflict continued to weigh on business sentiment.
On a positive note, both input cost inflation and selling price inflation declined compared to the sharp increases recorded in May, suggesting that cost pressures may be beginning to ease. Companies also expressed greater optimism about future prospects, anticipating an improvement in economic activity if regional tensions subside.
Overall, June data indicate that Egypt’s non-oil economy continues to face pressures despite signs of moderating inflation, but it could quickly benefit from a return to normal economic conditions if regional conflict pressures ease. The report expects real growth to accelerate from around 5.1% in fiscal year 2025/26 to 5.3% in fiscal year 2026/27, marking the strongest economic expansion since fiscal year 2021/22, despite the ongoing US-Iranian conflict in the Gulf region casting a shadow over economic conditions at the start of the fiscal year in July.
Private consumption is likely to remain the main driver of growth, supported by declining inflation, rising public sector wages, and continued strength in remittances from Egyptians working abroad. Improvements in the labor market are also expected to provide additional support to household spending.
Investment growth is also expected to strengthen with lower interest rates, helping to revive postponed private sector projects and improve financing conditions. Foreign direct investment inflows are anticipated to remain robust, particularly in manufacturing, industry, and construction sectors. Meanwhile, the implementation of Gulf-backed tourism projects, including the Ras El-Hekma and El Rom projects, is expected to accelerate.
Tourism revenues and Suez Canal earnings are also expected to gradually improve during the forecast period, providing additional support to economic growth and foreign currency reserves.
Given the recent decline in inflation, we now expect average inflation to reach around 14% in the second half of 2026, compared to our previous forecast of 16%, lowering our inflation forecast for fiscal year 2026/27 to 11.6%. This expected decline reflects improved outlooks for food and energy prices, alongside stronger-than-expected exchange rate performance.
Food price inflation has remained relatively contained in recent months, while lower oil prices could reduce the likelihood of additional fuel price hikes in the second half of 2026 if tensions in the Gulf region ease.
However, risks remain tilted to the upside, particularly given planned reforms to the food subsidy system and the possibility of further fuel subsidy cuts if regional tensions and conflicts persist.
