IDF forces operating in Gaza (IDF)
J.P. Morgan, the world’s largest investment bank, has gone negative in its outlook on the economy of Israel in the short term. The bank expects Israel will see a budget deficit of about 4.5% of GDP in both 2023 and 2024.
The change in the bank’s prediction is obviously tied to the ongoing Iron Swords War in Gaza against the terrorist organization Hamas. The war is costing Israel’s economy billions, from the virtual end of tourism to the loss of revenue from many businesses, such as in the entertainment field, that have been shuttered, and the tens of thousands of Israelis who have been forced to leave their jobs and answer call ups for military reserve duty.
The significant update is regarding the 2024 budget, which they predicted in the previous review regarding a deficit of only 2.9% of GDP. Further to this, JP Morgan emphasizes that “the risks concern a wider deficit.”
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“With great uncertainty regarding the results of the war,” explained J.P. Morgan, “the budgetary costs, and the lower probability of quantitative expansion (purchase of bonds) by the Bank of Israel, we think that investors should pay more attention to the budgetary risks. As of today, these risks are insufficiently priced by the market, against the background of only moderate corrections in the consensus budget forecast.”
J.P. Morgan also expressed concerns about what would happen should the war continue into 2024.
“In a more negative scenario (a conflict that lasts until mid-2024and without American aid),” said J.P. Morgan, “ we fear that the deficit may reach higher levels. Looking beyond the crisis period, military expenditures may remain high in the coming years as well. But this will be less ‘pressing’ from the point of view of financing the (immediate) deficit.”
This comes just a day after the global credit rating agency S&P (Standard and Poor’s) reported it expects that economic growth in Israel will only be 1.5% in 2023 and only 0.5% in 2024.
S&P also predicted that the country will have an average deficit of 5.3 % of GDP in 2023 and 2024. This is way higher than the 2.3% the firm predicted before the war in Gaza began.
Also two weeks ago, Moody’s Investors Service (Moody’s) – the internationally renowned credit ratings agency – predicted that the inflation rate in Israel will go up to as much as 6.8% in 2024. And Moody’ also predicted that Israel will see a growth in GDP of just 1.4%.
Moreover, Moody’s also predicted that Israel’s fiscal deficit could reach 3.5% of GDP by the end of this year. And in even worse news, the firm sees it possibly hitting 7.8% of GDP in 2024.
