Bank of Israel on Monday downgraded the country’s growth outlook from its April estimates because of the impact of the war in Gaza, with a “long way to go” before its economy can resume normality.
The Israeli economy is now expected to grow by 1.5 per cent in 2024 and by 4.2 per cent in 2025, with the central bank's projections cumulatively 1.3 percentage points lower than the April forecast.
The sluggish pace of growth assumes that the war’s direct impact on the economy will continue until the beginning of 2025, Bank of Israel said.
“The geopolitical uncertainty has increased, and the economy’s risk premium has risen. The war has considerable economic ramifications, which impact on Israel’s economy … there is still a very long way to go before fully returning to normal activity,” said Amir Yaron, Governor of Bank of Israel.
The overall level of economic activity is still lower than what prevailed just before the war, he said.
The war in Gaza began when Hamas attacked southern Israel on October 7, killing about 1,200 people and taking about 240 hostages.
Israel's retaliation has continued since then, with more than 38,000 Palestinians killed, 85 per cent of the enclave's 2.3 million people displaced, and Palestine's economy ravaged.
Bank of Israel said its latest estimate underscores “more prolonged fighting, and at a greater intensity”, a high level of uncertainty and an increased likelihood of more severe security scenarios.
To maintain the economic stability, Bank of Israel on Monday kept the interest rate unchanged at 4.5 per cent, but said it is expected to cut the rate to 4.25 per cent in the first quarter of next year.
“Due to the revised assumption regarding the duration of the fighting, our assessment is that the risk premium, which rose due to the war, will decline more gradually than we assumed in April, so that a higher interest rate will be necessary in order to stabilise inflation,” Mr Yaron said.
The government budget deficit is expected to be 6.6 per cent of the gross domestic product in 2024, Bank of Israel said.
If fiscal adjustments of a permanent nature totalling 30 billion shekels ($8.2 billion) will be made by the government, the deficit in 2025 is expected to decline to about 4 per cent of the GDP.
Meanwhile, the growth rate of private consumption in Israel, which recovered in the first quarter of the year, also moderated during the June quarter, as reflected in credit card expenditure data, Mr Yaron said.
Mounting inflation and debt
Bank of Israel noted that the inflation rate in the coming four quarters (ending in the second quarter of next year) is expected to be 3.2 per cent.
It is partly due to the impact of the taxation measures that the bank assumed will be approved in the coming year.
Inflation in 2024 is expected to be 3 per cent, compared with 2.7 per cent in the April forecast, and 2.8 per cent in 2025, compared with 2.3 per cent in the previous estimates.
“Inflation is a process that negatively impacts the economy and growth, and makes financial conduct difficult for the economy overall, and particularly for weaker population groups … therefore, we continue to adopt monetary policy that supports the moderation of inflation,” Mr Yaron said.
Ambiguity prevails
As long as the fighting lasts, Israel’s GDP growth is expected to be impaired both on the supply and demand sides, Bank of Israel said.
Mr Yaron said that Israeli economy is facing very “high uncertainty” and is in a complex period “in which significant processes are occurring”.
“Some of them indicate recovery and point to a return to solid economic activity, while others show the continued challenges weighing on the ongoing functioning of the economy.”
In its previous estimates, the Bank of Israel estimated the cost of the conflict for the years 2023 to 2025 to stand at about 255 billion shekels or 13 per cent of the 2024 forecast GDP, which includes both higher defence and civilian spending, as well as lower tax revenue.
COMPANY%20PROFILE
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Primera Liga fixtures (all times UAE: 4 GMT)
Friday
Real Sociedad v Villarreal (10.15pm)
Real Betis v Celta Vigo (midnight)
Saturday
Alaves v Barcelona (8.15pm)
Levante v Deportivo La Coruna (10.15pm)
Girona v Malaga (10.15pm)
Las Palmas v Atletico Madrid (12.15am)
Sunday
Espanyol v Leganes (8.15pm)
Eibar v Athletic Bilbao (8.15pm)
Getafe v Sevilla (10.15pm)
Real Madrid v Valencia (10.15pm)
SPECS
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KILLING OF QASSEM SULEIMANI
MATCH INFO
Borussia Dortmund 0
Bayern Munich 1 (Kimmich 43')
Man of the match: Joshua Kimmich (Bayern Munich)
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
UAE currency: the story behind the money in your pockets
The%20Caine%20Mutiny%20Court-Martial%20
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Strait of Hormuz
Fujairah is a crucial hub for fuel storage and is just outside the Strait of Hormuz, a vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond.
The strait is 33 km wide at its narrowest point, but the shipping lane is just three km wide in either direction. Almost a fifth of oil consumed across the world passes through the strait.
Iran has repeatedly threatened to close the strait, a move that would risk inviting geopolitical and economic turmoil.
Last month, Iran issued a new warning that it would block the strait, if it was prevented from using the waterway following a US decision to end exemptions from sanctions for major Iranian oil importers.
MATCH INFO
Champions League quarter-final, first leg
Tottenham Hotspur v Manchester City, Tuesday, 11pm (UAE)
Matches can be watched on BeIN Sports
The Little Things
Directed by: John Lee Hancock
Starring: Denzel Washington, Rami Malek, Jared Leto
Four stars
Six large-scale objects on show
- Concrete wall and windows from the now demolished Robin Hood Gardens housing estate in Poplar
- The 17th Century Agra Colonnade, from the bathhouse of the fort of Agra in India
- A stagecloth for The Ballet Russes that is 10m high – the largest Picasso in the world
- Frank Lloyd Wright’s 1930s Kaufmann Office
- A full-scale Frankfurt Kitchen designed by Margarete Schütte-Lihotzky, which transformed kitchen design in the 20th century
- Torrijos Palace dome
UAE currency: the story behind the money in your pockets
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
Company Fact Box
Company name/date started: Abwaab Technologies / September 2019
Founders: Hamdi Tabbaa, co-founder and CEO. Hussein Alsarabi, co-founder and CTO
Based: Amman, Jordan
Sector: Education Technology
Size (employees/revenue): Total team size: 65. Full-time employees: 25. Revenue undisclosed
Stage: early-stage startup
Investors: Adam Tech Ventures, Endure Capital, Equitrust, the World Bank-backed Innovative Startups SMEs Fund, a London investment fund, a number of former and current executives from Uber and Netflix, among others.
BIGGEST CYBER SECURITY INCIDENTS IN RECENT TIMES
SolarWinds supply chain attack: Came to light in December 2020 but had taken root for several months, compromising major tech companies, governments and its entities
Microsoft Exchange server exploitation: March 2021; attackers used a vulnerability to steal emails
Kaseya attack: July 2021; ransomware hit perpetrated REvil, resulting in severe downtime for more than 1,000 companies
Log4j breach: December 2021; attackers exploited the Java-written code to inflitrate businesses and governments
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Section 375
Cast: Akshaye Khanna, Richa Chadha, Meera Chopra & Rahul Bhat
Director: Ajay Bahl
Producers: Kumar Mangat Pathak, Abhishek Pathak & SCIPL
Rating: 3.5/5
The five pillars of Islam
More on Quran memorisation:
In numbers: China in Dubai
The number of Chinese people living in Dubai: An estimated 200,000
Number of Chinese people in International City: Almost 50,000
Daily visitors to Dragon Mart in 2018/19: 120,000
Daily visitors to Dragon Mart in 2010: 20,000
Percentage increase in visitors in eight years: 500 per cent
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