The Gaza conflict severely hit the Israeli economy, with GDP growth expected to plummet to 1.1%
The Israeli Ministry of Finance has significantly lowered this year's GDP growth forecast to 1.1%, reflecting the significant impact of the Gaza war on the economy. The 2025 economic growth forecast has also been revised down to 4.4%. The country's credit rating has experienced a historic downgrade, bond yields have risen, and investor sentiment is tense. It is estimated that war-related expenses could reach $66 billion, accounting for over 12% of GDP. Fitch Ratings has downgraded Israel's debt rating to A, forecasting a fiscal deficit of 7.8% of GDP. Despite the economic slowdown, the central bank may maintain the benchmark interest rate at 4.5%
According to the latest information from Zhitong Finance and Economics APP, the Israeli Ministry of Finance recently significantly lowered the country's economic growth forecast for this year, reflecting the significant pressure on the Israeli economy caused by the Gaza war over the past year. Based on the latest data, it is expected that Israel's Gross Domestic Product (GDP) growth rate will be only 1.1%, much lower than the previously forecasted 1.9%. The economic growth forecast for 2025 has also been revised down from 4.6% to 4.4%.
This new forecast is based on the "weaker than expected" economic growth data in the second quarter, indicating that Israel's economic growth this year may hit the lowest level since the 2009 financial crisis, excluding the impact of the COVID-19 pandemic in 2020.
At the same time, Israel's credit rating has been downgraded for the first time in its history, although it still maintains an A-level investment-grade rating. In addition, the country's local currency bond yields have risen significantly compared to US Treasury bonds, reflecting investors' nervous sentiment.
Israeli officials estimate that by the end of next year, war-related expenses could reach $66 billion, accounting for over 12% of GDP. Last month, international rating agency Fitch Ratings downgraded Israel's debt rating from A+ to A, pointing out that the Gaza conflict may continue until 2025 and could potentially spread to other fronts. Fitch also predicts that Israel's fiscal deficit this year may reach 7.8% of GDP, higher than 4.1% in 2023.
It is worth noting that despite the economic slowdown, the Bank of Israel may not lower its benchmark interest rate of 4.5% before next year. In recent months, Israel's inflation rate has risen, with the latest data showing an annual inflation rate of 3.2%, exceeding the target range of 1%-3%.
Andrew Abir, Deputy Governor of the Bank of Israel, stated last month that he doubts whether the conditions for monetary easing will be met by the end of this year. He pointed out, "It is surprising that the war has lasted for so long."