The Bank of Israel released a comprehensive assessment today, revealing a substantial economic impact stemming from the ongoing conflict with Hamas.
The central bank’s research department outlined a gross effect of 198 billion shekels ($53 billion), with more than half of this attributed to defense expenditure.
The war’s fiscal implications, initially estimated at 180 billion shekels for 2023-2024, have now climbed to 198 billion shekels.
This hefty economic toll has prompted caution from the central bank, delaying interest rate cuts in favor of stabilizing markets.
The economic growth projections were also revised downward, with the Bank of Israel now expecting GDP to expand by 2% this year and the next.
This adjustment, compared to previous estimates of 2.3% in 2023 and 2.8% in 2024, reflects the widespread disruption caused by the conflict.
Governor Amir Yaron emphasized that the fiscal ramifications of the war would persist over the medium term, urging the government to exercise prudence in crafting a new budget.
While the economic outlook remains uncertain, the central bank’s commitment to stabilizing markets and reducing uncertainty takes precedence, as reiterated in their recent decision to maintain the key interest rate at 4.75%.
The shekel strengthened against the dollar following this announcement.
As Israel grapples with the economic fallout of its worst armed conflict in decades, the central bank’s detailed assessment provides a sobering perspective on the challenges ahead.
The cabinet is set to discuss a revised fiscal plan for 2023, aiming to allocate an additional 30 billion shekels, mainly funded by debt, to address the pressing needs arising from the war.
