Chief economist: War will cut GDP by 1.4% in 2023

Israel will record zero economic growth in real terms in 2023, according to an updated forecast released today by the chief economist in the Ministry of Finance, Shmuel Abramson. According to the economic review, the effect of the Iron Swords war will be to reduce economic growth to just 2%, which amounts to stagnation, taking into account the growth of the population.

The chief economist’s previous economic growth forecast, in July, was 2.7%. The current report states that, were it not for the war, this forecast would have been revised upwards, and that the war will cause an estimated 1.4% downturn in GDP.

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As far as next year is concerned, the analysis states, “Given the high degree of uncertainty in connection with the situation in the fighting, several scenarios have been prepared.” In the base scenario, on which the forecast is based, Israel’s economy will grow by 1.6% in 2024. This scenario assumes that the war will continue until the first quarter of 2024, but that low-intensity conflict will persist until the end of the year. On the basis of the “rapid recovery scenario”, growth next year will be 2.2%, while on the basis of the “slow recovery scenario”, it will be 0.2%.

In the forecast for 2023, the chief economist stresses that “the damage to the sense of security and the depression of consumer sentiment are diminishing private consumption,” which is also being affected by lower household income. Growth in private consumption in 2023 is projected to be just 0.1%. Exports are expected to show a decline of 0.6%, while imports are projected to decline by 4.4% because of the fall in demand. “Victory in the war is important for the recovery of the economy as well,” Abramson states.

No state revenues forecast

The Ministry of Finance published the chief economist’s growth forecast separately from the Budgets Division’s state revenues forecast. This was because the Budgets Division made its final forecast dependent on a decision by Minister of Finance Bezalel Smotrich on changes to the 2023 budget, including cuts in amounts allocated to coalition parties yet unspent.

The Ministry of Finance hopes that tomorrow (Friday) a proposal will be brought before the government on changes to the 2023 budget, but the decision is liable to be postponed until next week. In any event, there is no agreement on the horizon on the part of Smotrich and his partners in the coalition on the main change required, in the 2024 budget, where the cut is due to be much deeper.

Published by Globes, Israel business news – en.globes.co.il – on November 23, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.