This week, the International Monetary Fund painted a bleak picture of the Israeli economy during the current and next years after recording growth below expectations last year, coinciding with the continuation of the genocidal war committed by Israel in the Gaza Strip and its aggression against Lebanon.
In its quarterly “World Economic Prospects” report issued last Monday, the IMF expected GDP growth of only 2.7% in 2025, which is half less than the previous forecast issued last April.
On the other hand, the Fund expects the Israeli economy to grow by only 0.7% in 2024, compared to 2% in 2023, a growth driven by increased government spending on defense and security.
Negative growth
However, according to the calculations of the Israeli Ministry of Finance, the growth rates recorded in the period between 2023 and 2025 are negative growth if the natural increase of population and settlers (per capita GDP) is taken into account.
Taking into account population growth and inflation, the zero growth of the Israeli economy is about 2.9%, and any percentages above these are considered to be real growth in the gross domestic product, and below them they are below the level.
According to World Bank data, the last time the growth of the Israeli economy reached less than 0.7% – with the exception of the year of Corona – was in 2002 when the economy contracted by 0.1%, which was the most severe year of the Al-Aqsa Intifada (the second Palestinian Intifada).
Even in the global financial crisis that struck the world in 2008 and its consequences continued until 2010, the Israeli economy recorded the lowest growth rate during it, amounting to 0.9% in 2008, according to World Bank data.
In 2020, when the Corona pandemic spread, the Israeli economy contracted by 1.9%, before growing strongly in 2021 at 8.6%, then to 6.8% in 2022, and falling strongly to only 2% in 2023.
Longer time
It appears that Israel’s post-war economic recovery will take longer than many Tel Aviv Stock Exchange analysts believe, according to expectations contained in the IMF report.
In the Fund’s opinion, if the war ends, the Israeli economy will witness improvement in the coming years, but it will be slow until investors regain confidence in the country as an attractive destination for investment.
Returning to the IMF report data issued last April, it expected Israel’s economy to grow by 1.6% during the current year.
But the shock was the extent of the expected decline over the next year, as expectations in the April report amounted to about 5.4%, while the Fund expected it to reach 2.7% in the report issued last Monday.
With the absence of any horizon for an end to the Israeli aggression against the Gaza Strip since October 7, 2023, and its expansion with the aggression against Lebanon since September 23, more uncertainty surrounds the future of the Israeli economy.
Last Monday, Israeli media revealed losses incurred by the economy since the beginning of last September, amounting to 25 billion shekels ($6.8 billion), which means that Israel’s budget is likely to be reconsidered and increased immediately after the holidays end.
According to Yedioth Ahronoth newspaper, until recently, the Israeli army’s daily war expenses amounted to 400 million shekels ($108 million).
However, since expanding operations in Lebanon, costs have risen to now exceed NIS 500 million per day ($135.1 million), with additional increases possible in the near future.
Budget deficit
On October 10, the Ministry of Finance said that the budget deficit in the 12 months ending last September reached 8.5%, up from 8.3% in the 12 months ending the previous August.
The Ministry expected at the beginning of this year that the deficit in the whole of 2024 would reach about 6.6% of the gross domestic product.
The Ministry attributed the high deficit to the escalating war expenses against the Gaza Strip since October 2023.
Tel Aviv Stock Exchange analysts expect the deficit rate to rise further with the announcement of this October’s data due to the expansion of the conflict northward to Lebanon and fears that tensions with Iran will turn into a regional war.
Before the expansion of the conflict with Hezbollah in Lebanon, the Ministry of Finance estimates indicated that the deficit would rise to its peak by September 2024, after which there could be a gradual decline.
The value of the deficit of 8.5% as a percentage of the gross domestic product for the year 2023 is approximately 45 billion dollars, as the gross domestic product in 2023 reached approximately 530 billion dollars.
Israel has turned more than once to global debt markets to obtain the necessary liquidity to finance war expenses and cover the budget deficit.
