Occupied Jerusalem- As soon as the ceasefire agreement in Gaza between the Palestinian resistance and the Israeli occupation entered into force, reactions from economic circles emerged regarding what appeared to be a prelude to stability.
Israeli economic circles were quick to review the cost of the war and its repercussions on the Israeli economy and the budget deficit. The Accountant General of the Ministry of Finance, Yahili Rotenberg, said that the ratio of public debt to gross domestic product increased by 7.7 points to reach 69% last year compared to 61.3% in 2023.
This indicates – according to the Accountant General – that the economic achievements of most of the past decade, with the exception of 2020-2021 with the outbreak of the Corona pandemic, evaporated due to the war.
Regarding these official statistics and the initial bleak picture of the reality of Israel’s economy, which was revealed with the initial reactions of the Ministry of Finance, the Bank of Israel, and the Stock Exchange in Tel Aviv, Israeli estimates suggested that the limited recovery in the various Israeli economic sectors – which was recorded in the first days of the armistice – will remain dependent on security stability and the extent of commitment. With a ceasefire agreement.
According to estimates by financial experts and economists, the stability of the security situation and the improvement in market performance may prompt the Bank of Israel (Central) to reduce the interest rate to enhance investments in various sectors.
Fluctuations in the performance of financial markets
The economic expert, Nabil Armli, reviewed the repercussions of the ceasefire’s effect on the Israeli economy, noting that it seemed at first glance to have a positive impact with the implementation of the first phase of the exchange deal, but it did not reflect a fundamental shift or change in the direction of Israeli economic indicators.
Armli said in a comment to Al Jazeera Net that the recent security transformations revived the main Tel Aviv Stock Exchange index, and added that “the continued security stability and commitment to the ceasefire by Israel will enhance the performance of the financial markets, and will support the strength of the shekel against foreign currencies.”
He explained that the tense security conditions and the fragility of the ceasefire agreement – as he described it – “would lead to a state of fluctuations and fluctuations in the Israeli financial markets, and in attracting and flowing foreign investments towards the various economic sectors in Israel.”
Aviation and tourism
Armeli believed that the state of security stability would – initially – accelerate the return of international airlines to Israel and reduce travel costs, which have risen sharply over the past year with a state approaching monopoly of the aviation market by Israeli companies such as (Al Al) and (Arkia), thus imposing exorbitant prices. On travel tickets.
He explained that the resumption of international airlines to Israel would contribute directly to the recovery of the local tourism sector, which had been subjected to a state of complete paralysis for many months due to the state of war and its various consequences.
Stopping Israel’s war on Gaza also means stopping Houthi attacks on shipping lines in the Red Sea, the return of maritime traffic, and enhancing import and export traffic to and from Israeli markets, which will have positive economic repercussions in the short and medium term, according to the economist.
Slow growth
He says Gad Lior En, economic affairs correspondent for the Israeli newspaper Yedioth Ahronoth Reducing interest rates in Israel, the return of financial transactions and the influx of foreign investments will have a medium-term impact, and he adds, “The war that broke out in October 2023 forced the government to borrow heavily in Israel and abroad to finance this war.”
He continues, “Israel’s debts have increased dramatically, with interest on loans also increasing, due to the lowering of Israel’s credit rating by international rating agencies during the year 2024,” expressing his belief that these factors will contribute to a slowdown in economic growth even if security stability prevails.
The economic affairs correspondent pointed out that “the debt-to-GDP ratio is a major indicator of the financial strength of any country, and certainly of Israel, which has been living under sensitive security conditions and wars since its founding,” and says, “The public debt index is of utmost importance in determining the credit rating, and thus the potential of… The wheel of the economy returns (to rotation again) after the war.”
Heal and swell
The Bank of Israel is betting on stabilizing the security situation and maintaining the ceasefire in order to revive the Israeli economic sectors. The Governor of the Bank of Israel, Amir Yaron, spoke about the possibility of lowering interest rates once or twice in the second half of 2025, in light of his expectations for inflation, which he said is expected to decline in the coming months.
According to official data issued by the Bank of Israel, inflation, which currently stands at 3.2%, is still higher than the set target of 1% to 3%.
The bank expects inflation to rise in the first half of this year, as a result of tax increases and economic recovery that leads to an acceleration in demand, especially in the labor market.
On the other hand, Yaron expressed his optimism about the second half of this year, indicating that he expects inflation to stabilize and moderate, which may allow the Bank of Israel to make several cuts to interest rates.
He said, “We see that there may be opportunities to lower interest rates,” according to what was reported by the Walla website.
Regarding the general economic situation, Yaron expected that Israel’s economy would grow by 4% in 2025 and 4.5% in 2026, which is a significant increase from the more modest expectations of 0.6% growth in 2024, unless there are further escalations in the security situation or Renewed war.
The Governor of the Bank of Israel said, “The ceasefire that we are in today, since October 7, 2023, constitutes a turning point, the impact of which will be long-term.”
He added, “The truce paves the way for regional arrangements that would lead to sustainable reconstruction and security, which would also lead to economic growth not only in Israel, but also in the entire region.”
