ALBAWABA - The Bank of Israel has lowered its growth forecast for both this year and the following one, citing a "high level" of political uncertainty and a growing belief that the Israeli war on Gaza would go longer and expand more vigorously than first anticipated.
The prediction for the future growth of the GDP was reduced by the central bank, bringing it down to 1.5 percent in 2024 and 4.2 percent in 2025. The prior projection, which was made in April, predicted increases of two and five percent, respectively.
The committee which is responsible for monetary policy at the bank has made the assumption that "the war will last at a higher intensity until the end of 2024, and will subside at the beginning of 2025," AFP reports. Additionally, the central bank made the decision to maintain the benchmark interest rate at 4.5 percent.
A statement by the bank regarding the forecast read that “beyond the security effects, the war is having significant economic consequences,” adding that “there are several risks of a potential acceleration in inflation: geopolitical developments and their effects on economic activity, a depreciation of the shekel, continued supply constraints on activity in the housing market and the air travel industry, fiscal developments, and global oil prices."
According to the bank's projections, inflation would increase to 3 percent in 2024, up from 2.7 percent in 2023. Furthermore, it anticipates that the conflict would continue to have a significant impact on the economy until the beginning of 2025, saying that “as long as the fighting lasts, GDP growth is expected to be impaired both on the supply side and on the demand side.”
Earlier in February, rating agency Moody's reduced Israel's debt rating from A1 to A2, citing the absence of an extended safety strategy and an understanding to end the war on Gaza, which has resulted in the killing of over 38,193 Palestinians, according to the Gazan ministry of health.
