Israel's finance ministry revised its 2024 growth forecast downwards to 1.1 per cent, down from 1.9 per cent, due to the economic impact of the prolonged war on Gaza. This marks the slowest growth rate since around 2009, excluding the Covid-19 pandemic. The updated projection for 2025 is 4.4 per cent, reduced from 4.6 per cent. The war has driven up defence spending and exacerbated the country's fiscal deficit. Key sectors such as construction, agriculture, and tourism are suffering. The conflict has led to an unprecedented downgrade of Israel's credit rating by Fitch Ratings, which lowered the country's debt rating from A+ to A, citing ongoing conflict risks and an anticipated fiscal deficit of 7.8 per cent of GDP for 2024, compared to 4.1 per cent in 2023. The financial strain includes a projected war bill of approximately $66 billion, or over 12 per cent of GDP. Local currency bond yields have surged, reflecting investor apprehension. The Israeli central bank is unlikely to lower its key interest rate from 4.5 per cent this year due to rising inflation, which stands at 3.2 per cent, above the target range of 1-3 per cent. Bank of Israel deputy governor Andrew Abir has indicated that monetary easing is unlikely before the end of the year. Efforts are ongoing by US President Joe Biden and leaders from Qatar and Egypt to negotiate a cease-fire in Gaza. Attribution: Bloomberg Subediting: M. S. Salama
