The Israeli Central Bank lowered its growth forecasts, assuming that the war in Gaza will continue with greater momentum and for a longer period than previously thought.
The Bank of Israel lowered its GDP growth forecast to 1.5% in 2024 and 4.2% in 2025. Previous estimates issued in April had expected growth of 2% and 5%, respectively.
A statement by Central Governor Amir Yaron said, “The authority assumes that the war will continue with greater momentum until the end of 2024 and that its intensity will decline at the beginning of 2025.”
The Central Bank expected inflation to rise to 3% in 2024, compared to 2.7% in 2023.
It is also expected that the direct impact of the war on the economy will continue until the end of 2025.
The statement continued, "As long as the fighting continues, it is expected that GDP growth will be affected from both the supply and demand sides."
The Bank of Israel issued its forecast in a report published in April based on the assumption that the “direct impact” of the war on the economy “peaked in the fourth quarter of 2023 and will continue until the end of 2024 with decreasing intensity” and no impact in 2025.
The latest report noted that “reserve mobilization continues to weaken labor supply in all industrial sectors.”
The construction sector was particularly affected by the restrictions imposed on Palestinian workers from the West Bank and the suspension of work permits for Gaza residents.
The Israeli Central Bank also expected that negatively affected feelings towards Israel at the international level would lead to “a decrease in demand for Israeli exports and investments from abroad.”
The forecast comes as the war in Gaza enters its tenth month.
In February, Moody's credit rating agency lowered Israel's debt rating from A1 to A2, citing the failure to reach an agreement to end the conflict in Gaza and the failure to develop a long-term plan for Israel's security.
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