Economic projections for Egypt have been notably impacted by the ongoing conflict between the United States, Israel, and Iran, with analysts cautioning that the war is likely to dampen the country’s growth prospects despite earlier positive forecasts.

Before the escalation of hostilities, the International Monetary Fund (IMF) had revised its growth outlook for Egypt upward in January, anticipating a 4.7 percent expansion in the current fiscal year ending June 30, 2026, and 5.4 percent growth for 2026-2027. These figures represented an improvement from previous estimates of 4.5 percent and 4.7 percent, respectively, although still slightly below the government’s 5 percent growth target for the current year. However, experts now warn that the conflict’s broader economic effects, including disruptions in key trade routes and rising global uncertainty, threaten to undermine these gains.

Global growth is projected to slow from 4 percent to 2.6 percent in 2025-2026, which is expected to restrict demand for imports and adversely affect Egyptian exports, particularly those destined for Gulf states, one of Egypt’s principal trading partners. The shutting of the Strait of Hormuz and threats targeting the Bab Al-Mandab Strait in the Red Sea have heightened concerns about maritime disruptions impacting shipping traffic through the Suez Canal, a critical artery for Egypt’s foreign currency earnings and economic growth. The canal's revenues, which had been recovering from disruptions caused by the Israel-Hamas conflict in Gaza, may face renewed challenges due to the current war.

In the first quarter of the fiscal year, Egypt’s economy recorded a 5.3 percent growth rate, its strongest in over three years, buoyed by improved Suez Canal revenues, a rebound in tourism, manufacturing sector expansion, and rising exports. However, this momentum faces headwinds as energy-saving measures introduced domestically—such as early closures of retail and leisure establishments—are expected to constrain service-sector activity. Elevated import costs, driven by increased insurance premiums for shipping and a significant depreciation of the Egyptian pound against the US dollar, have also escalated production expenses.

Non-oil private sector activity has contracted for four consecutive months, reflected in the Purchasing Managers’ Index (PMI) falling to 48 points in March, signaling a slowdown amid rising inflation and weakening demand. Inflation surged to an 18-month high, propelled by climbing fuel prices, manufacturing input costs, and exchange rate pressures.

Several sectors stand to be affected differently by the ongoing conflict. The industrial sector, which accounts for nearly 18 percent of GDP and employs around 2.5 million workers, is confronting rising input and energy costs. The tourism sector, which experienced strong recovery in 2025 supported by improved security, the opening of the Grand Egyptian Museum, and a lower exchange rate, now faces potential declines. Rising global energy prices and the proximity of conflict zones may deter visitors, with government targets to attract over 21 million tourists in 2026 at risk.

Economic analysts warn that a prolonged conflict could reduce overall growth by as much as 1 percentage point. Rising global oil prices may intensify budgetary pressures as the Egyptian government attempts to mitigate the impact on consumers. Meanwhile, the financial services sector is seen as more resilient compared to the real estate market, which is expected to see diminished demand amid rising construction costs and inflationary pressures.

Prior to the war’s outbreak, forecasts anticipated continued growth in Egypt’s construction sector driven by large infrastructure investments, including energy, utilities, and transportation projects, with projections of real growth accelerating to over 6 percent by 2027-2028. Whether this trajectory can be maintained depends in large measure on how the regional conflict evolves and its broader effects on global and domestic economic conditions.