Will renewed conflict derail Ethiopia's economic growth?

Ethiopia's economy is experiencing strong growth, with the International Monetary Fund projecting real growth of 9.2% for the 2025–26 fiscal year. Despite this positive forecast, economic recovery faces severe threats from renewed conflict in the northern regions, high reconstruction expenses, and climate-related crop failures. Following the 2022 Pretoria peace agreement, the country saw substantial growth driven by agriculture, mining, and electricity generation, but underlying structural challenges remain.

Financial analyst Abdulmenan Mohammed warns that a major escalation could undermine this progress, noting that current growth would become unsustainable. The extensive damage from the 2020–2022 war in Tigray and other areas resulted in billions of dollars in infrastructure destruction, lost production capacity, and agricultural disruption. A World Bank-backed assessment previously estimated recovery and reconstruction costs at approximately $19.7 billion, a financial burden compounded by inflation, debt servicing, and foreign currency shortages.

Renewed northern fighting threatens Ethiopia's strong economic growth and recovery efforts.

A renewed escalation would likely increase military spending, diverting public resources away from essential infrastructure, education, and social services. Financial analysts indicate that higher security expenditures could also intensify inflationary pressures if the government resorts to increased domestic borrowing. Furthermore, heightened security risks could cause businesses to postpone investments and make international lenders more cautious.

Agriculture and tourism remain particularly vulnerable to security disruptions in rural areas and negative travel advisories. While international investors monitor political stability and institutional reliability, analysts report no concrete evidence of companies withdrawing investments to relocate to neighboring countries such as Kenya at this stage.

Why it matters

As a BRICS member state, Ethiopia's economic trajectory has broader implications for regional stability and trade. Increased conflict, inflation, and public debt directly impact the cost of living for local households and strain international development partnerships.