Ethiopia is posting robust macro‑economic growth, with the IMF projecting a 9.2 % real expansion for the 2025‑26 fiscal year, following 7.2 % and 8.1 % growth in the two preceding years.

The recovery rests on agriculture, mining and electricity generation, but analysts warn that renewed fighting in the north could reverse these gains.

A World Bank‑backed assessment estimates that conflicts between November 2020 and December 2021 caused over $22.6 billion in damage, including $6 billion in direct economic losses, and a reconstruction plan of $19.7 billion has been drafted for 2023‑2028.

Financing the reconstruction remains uncertain, and a renewed escalation could force the government to divert funds to military spending, crowding out infrastructure, education and social services.

Higher defence outlays would also pressure the birr, as the military’s foreign‑currency needs could limit availability for private importers, potentially raising the cost of fuel, industrial inputs and consumer goods.

Inflation is projected at 11.7 % for 2025‑26, and analysts say renewed conflict could push price pressures higher, squeezing poorer households already coping with rising costs.

Key sectors such as agriculture, tourism and hospitality are especially vulnerable; fighting in rural areas threatens farmland security, input supplies and harvests, while travel advisories could deter visitors and hurt hotel and tour operators.

Ethiopia’s debt profile adds to the challenge: the country defaulted on a Eurobond interest payment in late 2023, and ongoing reforms under an IMF programme aim to address structural weaknesses while managing fiscal pressures.

While regional investors monitor the situation, analysts note no clear evidence that neighbouring economies, including Kenya, are gaining a direct economic advantage from Ethiopia’s instability.