Data on Tuesday showed a continued decline in the growth of the Israeli economy during the second quarter of this year, against the backdrop of the continuation of the war launched by Israel in the Gaza Strip.
The Central Bureau of Statistics stated that the gross domestic product rose by only 0.3% on an annual basis in the period from April to June last, down from a growth level of 0.7% announced in the previous month and 1.2% announced in August. /Last August.
The economy received support from consumer and government spending and investment in fixed assets, while exports declined.
Last week, the Central Bank of Israel reduced its growth estimate in 2024 to 0.5%, down from a previous forecast of 1.5% growth.
In addition to the slowdown in the economy, Israel is witnessing a rise in inflation rates, and central bank officials warn of the possibility of raising interest rates.
The bank kept interest rates unchanged last week for the sixth time in a row.
GDP growth in the first quarter was not revised at 17.2%, with the economy then recovering from a sharp contraction recorded in the fourth quarter of 2023 when the war on Gaza began.
Budget deficit
Last Thursday, the Israeli Ministry of Finance announced that the budget deficit reached 8.8 billion shekels ($2.34 billion) last September, with the escalation of the war in the Gaza Strip and its expansion to Lebanon and other fronts.
The deficit rose in the past 12 months to September to 8.5% of GDP, from 8.3% in the 12 months to August, compared to the target of 6.6% for the entire year 2024, which Finance Minister Bezalel Smotrich is adhering to.
The increase in the deficit to 8.5% comes due to the increase in military and civilian spending to finance the war, and the deficit rises for the sixth month in a row above the annual target set by the government at 6.6%.
It is noteworthy that in 2023, Israel’s budget deficit was at 4.2% and it plans to reduce it to 4% next year, which seems to be far-fetched.
Spending on the war – which began on October 7, 2023 – exceeded 103 billion shekels ($27.35 billion).
Earlier this month, Standard & Poor’s credit ratings agency lowered Israel’s long-term rating from “A+” to “A” due to the increasing security risks in light of the latest escalation in the conflict with Hezbollah in Lebanon, in addition to… The risk of a more direct war with Iran.
The agency highlighted concerns about potential security threats, including retaliatory missile attacks against Israel, which could exacerbate the impact of tension on the economy.
Moody’s lowered Israel’s credit rating by two notches to “Baa1” last month, and warned of downgrading it to “high risk” if the current escalating tension with Hezbollah turns into a widespread conflict.
The credit rating agency expected zero growth for the Israeli economy this year due to the escalation of the conflict with Hezbollah and a budget deficit of 9%.
Moody’s had expected a significant reduction in Israel’s growth during 2025 from 4% to 1.5%, and long-term growth expectations were reduced from 4% to 3% annually.
