The Israeli Ministry of Finance reduced its economic growth forecast to 0.4% in the current year, below the International Monetary Fund’s expectations of 0.7% in the World Economic Outlook report issued at its last meetings that ended on the 26th of this month.
On the other hand, the Israeli Ministry of Finance expected growth of 4.3% in 2025, which is more than the International Monetary Fund’s estimate of 2.7%.
Expansion of war
This adjustment in growth expectations comes in the wake of the expansion of the war to the northern front against Hezbollah in Lebanon, according to the Israeli Ministry of Finance, which explained that previous expectations were based on the assumption that the intensity of the war would continue as it was in September and that the fighting would end after the first quarter of the year. 2025.
The updated baseline scenario assumes that heavy fighting will continue through most of the last quarter of 2024, forcing a continued significant call-up of Army Reserve forces, and also assumes that this will be followed by a reduced call-up throughout 2025.
Thus, the Ministry of Finance’s forecast for economic growth is close to the expectations announced by the Bank of Israel (Central) earlier this month at 0.5% in 2024 and 3.8% in 2025, according to what the Israeli newspaper Jerusalem Post reported.
The Ministry identified several factors that may affect growth expectations, noting that a continued escalation in fighting or a major escalation may mean that workers and companies are unable to work, which could lead to a significant impact on the economy.
The ministry highlighted the loss of investor confidence as something that could harm economic growth, saying that “maintaining investor confidence is essential for the continuation of foreign and domestic investments,” adding that this would allow the government to continue funding the fighting and rehabilitation, according to what the Israeli newspaper reported.
Growth opportunities
The ministry said that a clear and early end to the war could increase expected economic growth, adding that this would be characterized by the return of displaced people to their homes and reservists returning to their jobs.
The Ministry indicated that the continuation of normalization processes with Arab countries would lead to a reduction in the risk premium for Israel and an increase in investment in the country, leading to an increase in economic activity.
In the context of facing economic hardships, the Israeli Ministry of Finance decided to freeze the minimum wage and government pensions, which were scheduled to increase on January 1, as part of efforts to confront the cost of the ongoing war in the north and south.
Freezing the minimum wage alone would save the Ministry of Finance 1.2 billion shekels ($322.1 million), according to what the Israeli economic newspaper Globes reported.
The 2025 budget is scheduled to be presented to the Council of Ministers for approval tomorrow, Thursday, amid pressure on Prime Minister Benjamin Netanyahu from senior officials in the Ministry of Finance, Director General Yossi Sheli and Avi Simhon, and the Prime Minister’s Economic Advisor, in order to get him to agree to the cuts. .
